Deposit Stress Testing

Original by Moody’s analytics, 2013, 8 pagesHamster_gagarin_linkedin
hamster writter This summary note was posted on 5 January 2017, by in Finance Stress Testing #, #, #
  • Consumers may hold stocks or bonds, houses, other fixed assets, bank accounts and CDs. They may even choose to stuff $100 notes into coffee cans and bury them in the garden.
  • Consider the differential behaviour of deposits when the economy is liquidity-trapped as opposed to situations where it is free to roam.
  • Macro drivers considered: nominal GDB, federal fund rate, 10-y and 30-y Treasury yields, oil price, median house prices, a broad exchange rate index for US, dollar, corporate profits and business fixed income
  • S&P500 share price index excluded because of a too big impact on resultant deposits in adverse and severely adverse scenarios
  • Model for total deposits that relates its growth rate to a number of economic drivers, financial market conditions indicators and bank related aggregate statistics. Includes lags of various lengths and is estimated using linear regression
  • Domestic total deposits modelled with logistic functional form and with GLM estimators for coefficients estimates.
  • Identify a group of 9 macro economic drivers with several lag versions
  • Most acute stress was during the Lehman Bros collapse
  • Very low interest rates have the effect of depressing growth in several key deposit categories
  • A tailored stress model will have the macro dynamics identified in the paper.
  • The framework will take into account the past efforts of managers to grow the deposit book and potential management responses to the onset of stress.