Bill Carcache, Nomura Securities
Great. Thank you. A separate question, if I may, on municipal deposits. Can you talk about how significant municipal deposits are to Wells? Are you de-emphasizing them given the relatively unfriendly LCR treatment? And to what extent do you see a future revenue opportunity for holding them?
John Shrewsberry, Chief Financial Officer
We have a very big municipal business and deposits are certainly part of that. It’s a service that we provide to the tax exempt issuing community. By municipal – it’s all forms of state and local and county government and other non-profit types of customers. The unfriendly LCR treatment came from the fact that municipal deposits tend to be collateralized by us, so that the municipal deposits are safer, in the event of a problem with their bank, and that wasn’t being taken into account in the original approach to LCR.
We think we’ve gotten a favorable outcome there; they are now LCR friendly, still very competitive. We still like those deposits. We still very much enjoy those relationships because there’s a lot of banking service that we provide to those types of clients, but they don’t have the LCR problem, that they might have seemed to have in pre-clarification that came out in the 3rd or the 4th quarters.
Bill Carcache, Nomura Securities
Okay. So it was my understanding that for the purposes of the LCR calculation in the numerator, the high quality liquid assets would not be able to include the collateral associated with the deposits, and hit had to outflow in the denominator on day one? Is that not the case anymore?
John Shrewsberry, Chief Financial Officer
I don’t think that you have it right. I think that it works fine. Incidentally, there were two issues that people were trying to address and tweaks to LCR related communities. The other one was whether high quality muni bonds would be considered HQLA on the asset side, and I don’t think that there’s been a resolution there. There are a number of our clients who issue high quality muni bonds, who take exception to that . We’ll see where that goes. But on the deposit side I think we’ve cracked the code.
Bill Carcache, Nomura Securities
Thank you.
Operator
Your next question comes from the line of Mike Mayo with CLSA. Please go ahead.
Mike Mayo, CLSA
I had a question about the efficiency ratio. First, what were the drivers in higher revenue driven compensation and deferred comp especially with lower originations and softer trading results? And then the following question to that is: you’re still at the upper end of your efficiency target, what can you do to get at least back toward the middle end?
John Shrewsberry, Chief Financial Officer
The drivers of the revenue oriented portion of increased compensation included a handful of businesses. I’d say investment banking was one of them where we were up $150 million in the quarter. So, some portion of the elevated expense is attributable to that, but it comes from a few others as well. And again it’s those businesses that performed better in the 4th Quarter so it can be with 90 different businesses, it can be a little here a little there. That was part of it. So, we find ourselves in the high fifty eights, for now 59%, with a lot of emphasis on trying to be as efficient as we can, how we spend our money every day.
There are no guarantees that we’re moving toward the middle of the lower end of the range in this interest rate environment and as we go through a full year, while we are tackling things that we need to tackle, we spend a lot of money on risk management, compliance related initiatives, other things that have a regulatory origin. Some of that is semi permanent, might be around for several quarters. Some of it is going to be around in the run rate for a while. If rates begin to move up, that’s probably moves us down in the range, but frankly at 59% which is the high end of our range, we can tolerate that. We think we are performing really well.
John Stumpf, Chairman and Chief Executive Officer
Mike, you are hitting one of the important issues for us. As John mentioned, we take this seriously. We are looking for all those opportunities to eliminate expenses where customers don’t find value and it’s an ongoing continuous process for us – reducing square footage, it’s one of those; looking hard at the kind of money we spend that is not revenue producing, if you will. But also making sure that we take a look at the long-term so we continue to invest in things like, late last year, Apple Pay and other things that we do to provide convenience for customers so it’s always don’t waste but also we take a long term view. This continues to be a big focus for us.
Mike Mayo, CLSA
Correct me if I’m wrong, I mean, you have a 55% to 59% efficiency target range and what I’m hearing now with the rate environment we might be at 9% whereas I wasn’t sure if I heard that same message before. Saying unless rates go up, we won’t get to the middle part of the range and you were a little bit lower for 4th, so am I hearing the message wrong or is it simply that you’ve done what you could for so long with the low rate environment and you can’t do a whole lot more. What is it that leads you to say, well, that 59% is okay?
