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A Framework to Model Core Deposits and their Influence on the Risk Management of Non-Maturing Deposits

Schepers, BSc Ilse (2020) A Framework to Model Core Deposits and their Influence on the Risk Management of Non-Maturing Deposits.

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Abstract:Non-maturing deposits (NMDs) are a significant portion of a bank’s balance sheet. Therefore, the bank needs to understand the liquidity risk and interest rate risk arising from NMDs. As a result, the objective of this research is to gain more insight into modeling NMDs and to help to identify the liquidity risk and interest rate risk a bank faces. According to the regulations, a bank has to divide the NMDs into core and non-core deposits. Core deposits are deposits that are stable and unlikely to reprice even under significant changes in the interest rate environment. The determination of the ratio of core and non-core deposits is still not addressed extensively in the literature. During this research, we successfully developed a framework for the determination of core and non-core deposits. There are various ways to manage the liquidity risk and interest rate risk arising from NMDs. During this research, we are focusing on the replicating portfolio and the Economic Value of Equity (EVE). The proportion of core deposits affects the replicating portfolio and the EVE, and thus also the interest rate risk and liquidity risk of a bank. With this research, we identified this effect.
Item Type:Essay (Master)
Clients:
KPMG, Amstelveen, Nederland
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:31 mathematics, 83 economics
Programme:Industrial Engineering and Management MSc (60029)
Link to this item:http://purl.utwente.nl/essays/85146
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