Modeling Non-Maturing Demand Deposits: A Proposed Methodology to Determining the Idiosyncratic Confidence Level Used for Separating Stable Deposit Volumes From Volatile Deposit Volumes

Sophie Döpp (), Andre Horovitz and Alexander Szimayer ()
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Sophie Döpp: University of Hamburg, Faculty of Business, Economics and Social Sciences, Department of Socioeconomics, Von-Melle-Park 5, 20146 Hamburg, Germany
Andre Horovitz: University of Hamburg, Faculty of Business, Economics and Social Sciences, Department of Socioeconomics, Von-Melle-Park 5, 20146 Hamburg, Germany
Alexander Szimayer: University of Hamburg, Faculty of Business, Economics and Social Sciences, Department of Socioeconomics, Von-Melle-Park 5, 20146 Hamburg, Germany

Quarterly Journal of Finance (QJF), 2022, vol. 12, issue 01, 1-20

Abstract: This paper aims to develop a methodology for the estimation of the idiosyncratic confidence level inherent within the process of determining the threshold of separation between volatile and stable deposit volumes. The idiosyncratic confidence level must be reflective of the institution’s specific risk preferences and liquidity risk management policies as anchored into the Principle 9 of the European Banking Authority and Basel Committee for Banking Supervision recommendations. We illustrate the proposed methodology by including liquidity constraints from the Basel III regulatory recommendations introduced in 2013. Furthermore, we point to other ancillary applications of such procedures in the financial risk management practice.

Keywords: Core deposit volumes; liquidity risk; idiosyncratic confidence level (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1142/S2010139222400067

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