Presenter: Dave Koch, Abrigo
Core deposits are still the holy grail of funding for community financial institutions. Recent market volatility, the emergence of new competitors, and ever-changing depositor demographics present challenges to traditional “valuation” assumptions. Recent changes to the definition of “core deposits” has changed reported core deposit levels across the industry. However, the real question is whether it changed the underlying expected value of these funding sources?
Without questions, the most critical assumption affecting interest rate and liquidity risk is how we treat non-maturity “core deposits”. Assigning long-term duration and less volatile pricing creates an internal hedge against rising rates. Assigning more volatility and short durations makes risk look high. Through the years, institutions have used many methods to assess the longevity and sensitivity of these funds. These methods include simple regression studies to more robust analysis. What is the right answer for your institution? Can it change your growth and profitability in the future?
In this 90-minute session, we will review common approaches to studying non-maturity accounts, and how the different approaches impact risk and profitability results. We will review how to perform “sensitivity testing” and make sense of that data to gain more confidence to ensure proper focus on the most critical issues affecting value. Lastly, we use the data from a core study to help make interest rate, liquidity, and pricing decisions consistent with your institution’s strategy.
This session will help you gain maximum value from your core deposit study 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 value and volatility
- What is “effective duration” and why is it more important that weighted average life or “duration”?
- How to identify different segments exist within an account and common strategies to handle them in changing markets
- How does your study help with liquidity plans for “surge” balances?
- How segmentation and blended funding can significantly lower the cost and risk
Target Audience: CEOs, CFOs, ALCO members, controllers, chief risk officer, chief retail, funding officers. This session is intended for individuals with a moderate to advanced understanding of the ALM and core deposit study process.