Without question, 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?
How have our newer depositors been similar or different from long-term depositors and what does this mean for your financial institution's plans for product pricing, development and overall growth strategy?
In this session we review the difference between the common core deposit study outputs used for managing interest rate and liquidity risk, from the plans for funding and growing the balance sheet in the future. We will illustrate how critical these assumptions are to the overall risk profile of the financial institution and outline steps to better manage funding in the future.
Participants will learn:
- The different approaches towards assessing core deposit "lives" and their application to interest rate and liquidity analysis
- What are good "dashboard" metrics to employ in assessing and managing non-maturity deposit funding concerns.
- 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
- “Effective duration” and why is it more important than weighted average life or “duration”?
- How to identify different segments and opportunities to build strategies to manage in changing markets
- How does your study help with liquidity plans
Target Audience: CEOs, CFOs, ALCO members, controllers, chief risk officer, chief retail, funding officers
Presenter: Dave Koch & Darryl Mataya, Abrigo
Recording available through: August 6, 2021