The Choice of Maturity Profile in NMD Behavioural Models

Matteo Formenti

The first goal of an NMD behavioural model is to obtain a stable and a core volume amount. The second goal is choosing the maturity profile. These two goals are fundamental for the management of interest rate risk in the banking book (IRRBB) and balance-sheet optimisation. The difference between the two is lies within the banking activity. While the first goal is in the scope of the developer of behavioural models (who sits in the risk management or the asset and liability management, ALM, department), the second is more a strategic view, and is usually under the responsibility of asset/liability committee (ALCO) members, or even board members.

The stable volume is the best estimate of the stable source of funding that is highly likely not to run-off under stress conditions, while the core volume is part of such a stable volume that is not repricing in the future.11 Following Basel (2016) “The stable NMD portion is the portion that is found to remain undrawn with a high degree of likelihood. Core deposits are the proportion of stable NMDs which are unlikely to reprice even under significant changes in the interest rate environment.” On the other hand, the maturity profile is

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