Estimating the value and interest rate risk of interest-bearing transactions deposits

James M. O'Brien

No 2000-53, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: A valuation model is developed within an interest rate contingent claims framework to estimate NOW account and MMDA premiums and interest rate risk for a sample of commercial banks. As has been previously done, bank deposit rate and balances dynamics are represented by autoregressive processes but with attention given here to alternative specifications and to the deposit rent processes and dynamics implied by these specifications. Alternative deposit rate specifications studied include asymmetric adjustment to market rate changes. In examining the implied deposit rent processes, special attention is given to the importance of distant rent forecasts and forecast dynamics for the deposit premium and interest rate risk estimates.

Keywords: Interest rates; Bank deposits; Risk (search for similar items in EconPapers)
Date: 2000
New Economics Papers: this item is included in nep-cfn
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