Deposit Analysis : Comprehensive Deposit Analysis

This report is for institutions that want to fully understand, quantify, and profit from their deposit behavior and value relationships.  Based on institution-specific forecast information, improved deposit management decisions can be made that build on customer relationships while reducing the cost of funds.  More current income can also be produced, while maintaining risk compliance, by a better matching of long-term assets to regulatory defensible deposit durations/average lives.

Three behaviors of deposits – supply/liquidity, repricing, and retention/average lives/value – are quantified and comprehensively documented in this report.  Institution specific time series data is statistically analyzed and forecasts for multiple rate scenarios are presented in a consultative, text and graphics rich format.  This is the turn key solution for ALM related deposit analysis needs.

The MountainView-McGuire Comprehensive Deposit Analysis Report will empower your institution to:

  • Control and manage deposit based liquidity more effectively and at lower cost
  • Better manage deposit supply and pricing to attain more stable and lower cost funds
  • More accurately measure interest rate risk (IRR) using the right deposit inputs
  • Find best balances determinants in each category and identify high performing branches
  • Better manage the balance sheet by using the right ALM model inputs for deposits
  • More accurately set deposit crediting rates in FTP and profitability applications
  • Strongly communicate true franchise value to capital markets and other audiences

The report is comprehensive in its content and documentation.  It also contains many consultative discussions of report findings and their specific applications.  The report is provided as a standard deliverable with selected options.  Sections in the standard deliverable include:

Executive Summary:  This section provides a compact review of the institution’s historic data and all of the report’s forecast results.  Section material draws information from the detailed analyses throughout the report and condenses it for quick understanding by management and presentation to institution staff, the Board, and regulators.

Application Inputs:  The total balances supplied/liquidity behaviors, repricing, and value related financial model inputs produced in the report are presented in this section.  All information is provided in formats that facilitate making the correct choice in specific circumstances (e.g. business plan evaluation, regulatory IRR analysis, and FTP).  Forecast values are provided at Base Case (current interest rates) and for a series of +/-300 bp rate shock tests, in increments of 100 bp.

Overview of Historic Data:  Because the report’s statistical analyses are derived from recent institution-specific experience, presentations and interpretations of the historic record are made.  The main emphasis here is on the stability of total balances as a funding and liquidity source, rates paid and repricing behavior, and retained balances/run off patterns.

Detailed Forecast Data:  This section presents category specific forecast data for multiple interest rate scenarios.  Forecast results quantify Base Case supply momentum and the sensitivity of supply to interest rates.  Current rates paid relationships to historic norms and key repricing relationships (beta coefficients and lag matrix) are quantified.  Base Case and scenario-specific forecasts quantify existing balances retention patterns, which are used in calculating average lives, present values, effective durations, and embedded premiums for each deposit category.

Estimated System of Equations:  The statistically estimated system of institution-specific simultaneous deposit behavior equations is documented in this section.  In addition to details, each equation is summarized and general commonalities within the equation system are highlighted.

Present Value Calculations:  This section provides complete documentation of all present value calculations in Base Case and for the +/-300 bp, +400 and +500 bp rate shock scenarios.  General inputs (e.g. category level balances runoff and rates paid, net non-interest expense allocations, and discount rates by term) plus spreadsheet detail by scenario are documented.

Description of Methodology:  A comprehensive description of the McGuire Advanced Assessment MethodologyTM is provided in this section.  This fully documents the statistical processes used in producing report outcomes.

Clients can customize their standard report with optional components:

Segmentation Analysis:  The historic account level data that underlie the statistical estimations can be drilled down into to identify account attributes or customer characteristics that are determinants of “best balances” (those with favorable supply and retention patterns).  Segmentation analyses can also show relative performance by branch, state, or across holding company banks.

Analog Category Analysis:  In some cases time series data is not available for the full period necessary or a new category with no data is being contemplated.  In such instances, expected deposit behaviors can be benchmarked against averages from a custom set of MountainView-McGuire deposit analysis client forecast data.  Selection of institutions is based on location, asset size, operating type, and other characteristics.

Maintenance:  Regulatory compliance and business confidence require that forecasts of deposit behavior be monitored over time, periodically back tested, and updated at least annually.  All of these actions are accomplished in our report maintenance program.  Back tests and updates are also available as necessary if they are needed more often.

Data Production Assistance:  If institution staff, expertise, or time is limited, MountainView-McGuire can provide assistance with data set creation.  Normally this intakes dumps of account level data and transforms them into data formatted as “run ready” for our statistical analyses.

All deposit analyses are produced using the McGuire Advanced Assessment MethodologyTM.  This patented, advanced econometric approach analyzes historic deposit behavior in a simultaneous equations system that reflects banking practice and all depositor influences.  It produces high precision supply and value forecasts that quantify total balances, rates paid, and retention behaviors, plus inter-category interdependencies.  Because unambiguous linkages are maintained from the data to every application, audit trails for all reports are clear and complete.