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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Sophie Döpp & Andre Horovitz & Alexander Szimayer, 2022. "Modeling Non-Maturing Demand Deposits: A Proposed Methodology to Determining the Idiosyncratic Confidence Level Used for Separating Stable Deposit Volumes From Volatile Deposit Volumes," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 12(01), pages 1-20, March.
    • Handle: RePEc:wsi:qjfxxx:v:12:y:2022:i:01:n:s2010139222400067
    DOI: 10.1142/S2010139222400067
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