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Role of the Core Deposit Study in Your ALCO and Funding Plans

Role of the Core Deposit Study in Your ALCO and Funding Plans



Time: 2:00 pm EST


The most critical assumptions impacting risk remain those regarding the treatment of non-maturity deposits. Many institutions rely on older, less effective methods for assessment, or default regulatory views such as OTS published decay rates or the recently adopted approach by NCUA, understanding that the true performance is not the same. How well then do reports around interest rate and liquidity risk really reflect the true concerns and plans of your institution?

After studying hundreds of financial institution’s non-maturity deposits, we know that within an individual institution, differences exist in depositor behaviors within single account and should be expected based on many different factors. Using regulatory measures leads us down a path to ineffective decision making and sub-optimal performance.

In this 1-part session we will review the most common approaches to studying non-maturity accounts, and how the variances impact risk results. We will outline how to run “sensitivity tests” to gain more confidence in each key assumption area and ensure that you focus on the issues with the greatest impact if wrong. Lastly, we will review how information from a quality core study should be used in interest rate and liquidity measurements, pricing decisions and strategy development and how continued improvements will over more benefits for many.

Given the increased concentration and growth in non-maturity accounts over the years, understanding potential behaviors and costs as market conditions change is crucial to managing net interest margin, liquidity levels and overall growth. Strategies for growing and\or retaining these funds requires a more detailed examination of the deposit makeup and trends than traditionally used for asset\liability management historically.

In this session, we explore how to get the maximum value from a comprehensive core deposit study that can help you to assess:

  • How to use core study outputs to build pools of funding for various asset classes
  • How factors such as depositor age and account “vintage” impact volatility
  • Why “effective duration” is more important that weighted average life or “duration” when building strategies
  • Why different segments exist within an account and how to handle them in changing markets
  • How to build liquidity plans for “surge” balances
  • How segmentation and blended funding can significantly lower the cost and risk