An Unobvious Dynamics of Rolled Over Time Banking Deposits Under a Shift in Depositors’ Preferences: Whether a Decrease of Weighted Average Maturity of Deposits is Indeed an Early Warning Liquidity Indicator?

14 Pages Posted: 23 Jan 2015

Date Written: December 26, 2014

Abstract

A continuous-time deterministic model for analytical simulation of an impact of changes in credit turnover, term to maturity structure and rollover rate on balances of time banking deposits, i.e., preferences of depositors, is developed. The model allows taking into account an attraction of new deposits and rolling over the maturing deposits. It is shown some deceptive and unobvious regimes of depositing when the deposit balances increase in the beginning and then fall down and vice versa. It is presented an equilibrium money conservation law for banks. Besides, the examples of calculations of continuous-time deposit dynamics are given. It is shown that such a Basel early warning liquidity indicator as a decrease of weighted average maturity of liabilities is necessary but not sufficient. It is proposed that to make more accurate ALM decisions and avoid serious managerial errors a bank should rely not only on a change in deposit balances but on changes in turnovers, term structure of deposits and rollover rate. At long-term lending, a bank should orient on minimal deposit balances in a short-term period and long-term, steady state deposit balances, employing for this an equilibrium money conservation law.

Keywords: bank, time deposit, retail, balance, credit turnover, debit turnover, term to maturity, rollover rate, dynamics, money conservation law, liquidity, early warning indicator, Basel iii, asset liability management (ALM), Volterra integral equation, Laplace transform

JEL Classification: G21

Suggested Citation

Voloshyn, Ihor Vladyslavovych, An Unobvious Dynamics of Rolled Over Time Banking Deposits Under a Shift in Depositors’ Preferences: Whether a Decrease of Weighted Average Maturity of Deposits is Indeed an Early Warning Liquidity Indicator? (December 26, 2014). Available at SSRN: https://ssrn.com/abstract=2553732 or http://dx.doi.org/10.2139/ssrn.2553732

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
67
Abstract Views
505
Rank
608,356
PlumX Metrics