The Hidden Costs of Ordering Cash from Correspondent Banks and the Federal Reserve

When it comes to picking a money supplier, there are many options. Many financial institutions choose to place branch orders from correspondent banks or directly from the Federal Reserve. However, financial institutions often don’t think about the financial logistics of currency and coin processing services of their money supplier. Depending on the money supplier, banks and credit unions are subject to incurring additional costs through service markups and often develop a more complex and inefficient cash ordering process through the additional steps required to fulfill orders. Below are seven disadvantages of using a correspondent bank or placing money orders directly through the Fed.

1. Using correspondent banks adds overall complexity to the cash supply chain

Correspondent banks act as the middlemen between financial institutions. This adds overall complexity to the financial institutions’ cash supply chain and can negatively impact overall operations. For example, financial institutions that use correspondent banks are fully reliant on them placing their cash orders on time. If a branch’s order is submitted late or forgotten, the branch will have to deal with late deliveries and the possibility of not being able to meet customer demand. In addition, this creates more work for the bank or credit union in the back office by adding significant time to the reconciliation process.

2. Correspondent banks are restricted by the Fed’s coin mandates

When a financial institution uses a correspondent bank for currency and coin orders, they are likely to run into issues surrounding coin specifically. Coin has been a hot topic in the financial industry since 2020 due to significant shortages and high demand, which has led the Federal Reserve to put mandates around how much coin banks and credit unions can order at a time. If a financial institution is using a correspondent bank, they can only allot them a percentage of what the Fed allots them.

3. Correspondent banks are often refusing to service another financial institution’s commercial clients

Many correspondent banks will no longer process commercial clients through their vaults. This can lead to a financial institution having to use more than one correspondent bank or having to place another order directly with the Fed for their commercial clients. This adds another layer of complexity for the financial institution when deciding how much cash to order and the frequency of deliveries. Even if correspondent banks were fulfilling for commercial clients, financial institutions should consider whether or not they would want to provide their commercial information to another bank.

4. Some correspondent banks are unable to fill emergency shipments

In a situation where a customer has a cash request that requires an emergency shipment, correspondent banks are generally not equipped to quickly resolve this. This is because they might not have the additional cash on hand, or they have to communicate and coordinate with a CIT carrier to get the cash to the bank or credit union. This all leads to additional wait time and an unsatisfied customer.

5. The correspondent bank network could shrink at anytime

It is important to remember that regulations, both internally and externally, could be put in place at any time that shrinks correspondent bank networks. This could limit their availability to service all branches. When this happens, financial institutions are left to put fires out and quickly find other solutions that might not be a good long-term solution.

6. Correspondent banks and the Federal Reserve have high service mark-up fees

It is important to remember that everyone wants to make a profit. Correspondent banks also have high markup fees to ensure they profit, and the Federal Reserve has significant charges if the financial institution placing the order has more than 10 branches. In addition, the Fed also charges for each individual shipment if it is over 10 and there are other Federal Reserve charges that impact financial institutions as well.

7. The Federal Reserve requires money to be ordered in specific increments

Similar to the coin mandates mentioned earlier, the Fed only allows financial institutions to place their cash orders in certain increments. A bank or credit union might have to place slightly smaller or larger orders depending on their actual cash demand based on these increments.

If your bank or credit union is using a correspondent bank or placing orders directly through the Federal Reserve, it may be time to re-evaluate your money supplier. For efficient cash and coin processing, look for a cash management partner with a proven track record of success and an expansive vault network so your financial institution can expand services and market presence without the fear of limited availability of service.

Learn how Loomis can help your financial institution optimize cash and coin processing by downloading our new resources:

- The Logistics of Currency and Coin Processing: Correspondent Banks

- The Logistics of Currency and Coin Processing: The Federal Reserve