Capital Markets Examiner School, Providence, RI

Critical Assumptions

 With heightened levels of NMDs in community banks today, it is important that banks apply appropriate decay rates, average lives, and price sensitivity assumptions (i.e., betas) in IRR modeling.  Traditional assumptions associated with NMDs (long average lives and lower price sensitivities)  Newer segments of NMDs acquired during the financial crisis may not behave like typical core deposits  Institutions should update their model assumptions to capture changes in funding mix to ensure any adverse impact is appropriately considered and planned for so that management can make well-informed decisions