When modeling Non-maturity deposits (NMDs) the Basel Committee suggests the following (see 31.109 of the guidelines):

Banks should distinguish between the stable and the non-stable parts of each NMD category using observed volume changes over the past 10 years. The stable NMD portion is the portion that is found to remain undrawn with a high degree of likelihood. Core deposits are the proportion of stable NMDs which are unlikely to reprice even under significant changes in the interest rate environment. The remainder constitutes non-core NMDs.

I found a bit of literature on how to distinguish between stable and non-stable portions. However, I found nothing on modelling core and non-core deposits. And given the defintion of core deposits and the current interest-rate environment in central Europe I think there are not so many analytical methods to distinguish. Does anyone have experience in modeling core-deposits and/or can point me towards literature?


1 Answer 1


This is more of a practital answer, but I've seen an approach by a medium-sized bank (balance sheet about 60 billion), which is already ECB-proof and which might answer your question:

In a nutshell, you can apply a dynamical replication approach, which tries to find the optimal portfolio consisting of fixed assets that you have to invest to archive a margin which has minimal standard deviation. You apply this to your whole deposit. Then you define non-core deposits as the proportion which has the overnight rate (or less than 1 month, depends on how you define it) of modeled maturity.


You have retail deposits, which technically have a maturity of 1 day. After applying your optimizing algo, the result is: Invest 10% at the overnight interest rate, 30% at the 1 year rate and 60% at the 10 year rate to archive a margin with lowest standard deviation.

You can go one step further and apply a CAPM approach, which tries to find the optimal mixture in regards on an efficient frontier, which is not the minimum standard deviation margin, but the one with the optimal "sharpe ratio", i.e. which has the best risk-return-tradeoff for you as a bank.

So in the end, you result with 10% non-core deposits and 90% core deposits of your overall retail deposits (which are NMDs).

Hope this helps a bit.


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