Capital Markets Examiner School, Providence, RI

Decay Rates

 Deposit Decay Rate = Balance Run Off/Total Deposits  Calculated by product or account type

 Should be measured at the product or account level (by sample)

 Bank Specific or Peer Assumptions?

 Implications of Decay Rate Assumptions?

Average Life of NMD

 By Definition, NMD do not have a stated maturity

 However, an IRR model needs a maturity date in order to calculate EVE

 The Average Life assumption is THE critical assumption for EVE

 The determined Average Life determines the point on the Yield Curve used to calculate EVE