By Ryan Miles, Senior Investment Adviser | Managing Director

For many public entities, banking relationships are long-standing and rarely revisited. While that continuity can be valuable, today’s environment calls for a more intentional evaluation of whether your banking partner is truly delivering value.

What was once primarily about processing transactions and minimizing fees has evolved into a broader assessment of financial strength, risk management, technology capabilities, and the ability to support meaningful returns on public funds.

Recent disruptions in the banking sector such as the Silicon Valley Bank collapse a few years ago have reinforced the importance of understanding not just the services your bank provides, but how it is positioned to perform under stress. As stewards of public funds, this requires a more comprehensive approach to evaluating banking partners.

Financial Strength & Stability

A bank’s financial strength should now also be a central consideration. Public entities should understand their banking partner’s capital position, liquidity profile, and exposure to interest rate risk. While most institutions meet regulatory requirements, differences in balance sheet structure and funding sources can create meaningful distinctions in stability and resilience.

Maximizing Earnings on Public Funds

At the same time, higher interest rates have made cash management more impactful. Banking relationships should be evaluated based on total financial benefit, including earnings credit rates, deposit rates, and overall fee structures. Even modest differences can have a measurable effect on annual revenues.

It is also important to recognize that deposit pricing is not static. Banks tend to lower earnings credit rates quickly in declining rate environments, while often being slower to increase rates as conditions improve. As a result, municipalities should actively monitor their rates and periodically confirm they remain competitive. Unlike investment advisors, banks are not fiduciaries and are not responsible for ensuring your organization receives the highest available return.

In some cases, this evaluation may highlight opportunities to complement banking balances with other highly liquid, cash-equivalent investment options, such as U.S. Treasuries or money market funds, where permitted by policy. Thoughtful allocation across banking and investment vehicles can enhance returns while maintaining safety and liquidity.

Fraud Risk & Internal Controls

Fraud risk has increased significantly in recent years, particularly for public entities. Business email compromise, payment redirection schemes, and unauthorized transaction attempts are becoming more frequent and more sophisticated. As a result, evaluating a banking partner must include a thorough review of both available tools and operational practices.

At a minimum, organizations should expect positive pay for checks and ACH transactions, ACH filters and blocks tailored to transaction activity, dual approval and segregation of duties for payment initiation, and real-time alerts and transaction monitoring.

However, tools alone are not sufficient. The effectiveness of fraud prevention depends on how well controls are implemented internally and supported by the bank. Strong banking partners provide not only technology, but also guidance, education, and responsiveness when issues arise.

An effective approach combines bank-provided controls, internal procedures, and staff awareness into a layered defense strategy.

Technology & Operational Efficiency

Technology has become another defining component of the banking relationship. Public entities increasingly expect intuitive platforms, robust reporting, and integration with internal systems. Efficient payment processing, timely access to data, and improved cash visibility can have a direct impact on operational effectiveness.

Service Model & Relationship Continuity

While pricing and technology are important, the quality of the relationship remains essential. Experienced banking teams that provide consistent service, understand your organization, and offer proactive guidance can deliver meaningful long-term value.

Final Thoughts

Banking relationships remain a foundational component of public sector financial management. As the environment continues to evolve, periodic evaluation helps ensure that these relationships continue to deliver value. For organizations considering how best to assess their current banking structure or identify potential opportunities for improvement, Ehlers is available as a resource to provide guidance and perspective based on current market conditions.

Required Disclosures: Please Read

Ehlers is the joint marketing name of the following affiliated businesses (collectively, the “Affiliates”): Ehlers & Associates, Inc. (“EA”), a municipal advisor registered with the Municipal Securities Rulemaking Board (“MSRB”) and the Securities and Exchange Commission (“SEC”); Ehlers Investment Partners, LLC (“EIP”), an investment adviser registered with the SEC; and Bond Trust Services Corporation (“BTS”), holder of a limited banking charter issued by the State of Minnesota.

This communication does not constitute an offer or solicitation for the purchase or sale of any investment (including without limitation, any municipal financial product, municipal security, or other security) or agreement with respect to any investment strategy or program. This communication is offered without charge to clients, friends, and prospective clients of the Affiliates as a source of general information about the services Ehlers provides. This communication is neither advice nor a recommendation by any Affiliate to any person with respect to any municipal financial product, municipal security, or other security, as such terms are defined pursuant to Section 15B of the Exchange Act of 1934 and rules of the MSRB. This communication does not constitute investment advice by any Affiliate that purports to meet the objectives or needs of any person pursuant to the Investment Advisers Act of 1940 or applicable state law. In providing this information, The Affiliates are not acting as an advisor to you and do not owe you a fiduciary duty pursuant to Section 15B of the Securities Exchange Act of 1934. You should discuss the information contained herein with any and all internal or external advisors and experts you deem appropriate before acting on the information.