Treasury: sweep assets fell as rates declined.

Sweep assets generated by company funds in sweep accounts declined in 2003 by 3 percent, or $7 billion, according to Treasury Strategies 2004 Commercial Bank Sweep Survey. The decline reverses 11 years of consecutive growth that saw sweep assets rocket from $20 billion to $320 billion.

In a sweep program, banks automatically invest customer deposit balances. In return, banks charge a fixed monthly fee and earn a spread on invested balances. As interest rates have dropped, however, the yield on sweeps has dropped below the product's monthly fee for many businesses, prompting them to drop the product.

"Sweep assets grew rapidly because of the product's tremendous convenience," notes Chrystal Pozin, manager of Treasury Strategies Sweep Survey. "But the recent decline in interest rates has caused smaller firms to exit the product, leading to the decline in assets."

A decline in the number of sweep accounts began in 2002 and continued through 2003. Pozin says that companies shifted sweep assets into deposit accounts and direct purchases of overnight investments such as repurchase agreements, eurodollars and money market mutual funds.

Despite the aggregate decline, some market segments grew sweep assets in 2003. Treasury Strategies' survey shows that most banks grew their large corporate sweep portfolios, and that banks under $100 billion in total assets posted modest overall gains.

The survey noted important differences in how banks have responded to the low interest rate environment. Pozin notes, "Some banks reported cutting spreads and fees to retain sweep accounts. Others actively promoted customers to shift sweep assets back into deposit accounts. These actions reflect differing balance sheet strategies and opinions about how easy it will be to maintain balances, and how easy it will be to re-attract customers, once interest rates begin to rise."