Capital Markets School - October 2023

Internal Use Only

Decay Rates

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

Answer in the chat:

What are the implications of Decay Rate Assumptions?

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

• Bank Specific or Peer Assumptions?

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Internal Use Only

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

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