Risk Management of Demand Deposits in a Low Interest Rate Environment

Hana Dzmuranova
Additional contact information
Hana Dzmuranova: Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic

No 2016/10, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: In this paper, we focus on the liquidity characteristics (stability and maturity) of retail deposits in the Czech Republic and changes in the structure of retail deposit products that occurred because of low interest-rate environment. Retail deposits are a primary source of funding for banks in the Czech Republic. In simplicity, we divide retail deposits into two main groups: (i) demand deposits are products with non-maturing features as maturity (timing of cash flows) is not known by a bank as a client can withdraw a deposit on notice while in reality deposits remain in a bank for a longer period; (ii) term deposits are products with maturing characteristics, i.e. a timing of cash flows is known. Bankers deem retail deposits as a largely stable and cheap funding source. Our research shows that demand deposits are a stable funding source with much higher maturity than term deposits. Moreover, we conclude that the transfer of term deposits to demand deposits that accelerated in recent years resulted from a low interest rate environment. This transfer implies increasing liquidity risk of the Czech banking sector. However, we argue that banks should be able to hedge this risk properly.

Keywords: asset and liability management; demand deposits; term deposits; liquidity risk; interest rate sensitivity (search for similar items in EconPapers)
JEL-codes: C22 C53 G21 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2016-05, Revised 2016-05
New Economics Papers: this item is included in nep-ban, nep-rmg and nep-tra
References: Add references at CitEc
Citations:

Downloads: (external link)
http://ies.fsv.cuni.cz/sci/publication/show/id/5470/lang/cs (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://ies.fsv.cuni.cz/sci/publication/show/id/5470/lang/cs [301 Moved Permanently]--> https://ies.fsv.cuni.cz/sci/publication/show/id/5470/lang/cs)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fau:wpaper:wp2016_10

Access Statistics for this paper

More papers in Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies Contact information at EDIRC.
Bibliographic data for series maintained by Natalie Svarcova ().