sorry guys this is a stupid question, but waht does deposit runoff mean? does this just mean if a customer liquidates from an investment and takes out his cash before it matures? thanks!
that means no more new products. For mortgage portfolio, means no more new mortgages so the portfolio is “running off”. For a hot babe, that means no more new guys as she is getting fat and needs to “run off”
lol. thanks. but what i don’t get is why are there research papers out there modeling “deposit run off” then? why would a bank model/forecast something like this if they are the ones themselves that will decide when to stop originating new deposits? or am i missing something here? thanks!
one reason might be to see how they would be able to fund the assets given a run off in a certain deposit product. For instance, checking accounts that carry low fees.
jimjohn Wrote: ------------------------------------------------------- > lol. thanks. but what i don’t get is why are there > research papers out there modeling “deposit run > off” then? why would a bank model/forecast > something like this if they are the ones > themselves that will decide when to stop > originating new deposits? or am i missing > something here? thanks! Banks don’t decide when to originate new deposits, it’s driven by factors such as rates paid out and relationships with their clients. If a bank has a portfolio of CD’s on it’s books and projects a higher run off in the next 3-6 months, management has to decide how to replace that runoff (either by initiating some sort of promotion, paying higher than local market rates) or by seeking alternate sources of funding (Fed/FHLB borrowings, repos, brokered deposits). Or, if they already have sufficient liquidity, they can just let the run off take place. A bank won’t stop taking in deposits because they’re pretty hard to get in the first place. Usually, they will hold excess deposits in liquid investments like Treasuries or Agency MBS until loan demand is available to leverage their deposit base. The ideal situation would have all customers holding their deposits in a low cost product, like a checking or money market account for an indefinite amount of time. But that’s rarely the case because depositors have to pay their bills, food, etc. What they really don’t like, and have to model, are the customers like me, who won’t renew their CD’s or pull out their checking balances because the bank down the street offers a better product.
Deposit runoff is explained extensively in this thread: http://www.analystforum.com/phorums/read.php?1,1266307,1268350#msg-1268350