For years, community banks have relied on the FIDICIA 305 safe harbors (along with the old OTS average life assumptions) to support their modest NMDA average life assumptions. These levels (about 3 to 3.5 years average life) are now under attack by the very regulators who established them.
We all know that the regulatory community has been sounding the alarm over bank-specific assumptions.
Recently I've seen many community banks (including some of the smallest and least complex) criticized by their examiners for the lack of supporting documentation on extremely short and conservative deposit assumptions.
"So what", you might be saying.
Here's why it matters. Without proper deposit documentation you're stuck with short liabilties.
At the same time, your asset repricings have lengthened (floored loans, longer term loans and investments). This means you're at risk for busting your interest rate risk limits.
To remedy this situation, community banks need to get a deposit study.
In fact, right now there are only 2 kinds of banks:
- Those already told by their examiner to get a deposit study.
- Those who are going to be told by their examiner to get a deposit study.
And it's always better to head into your exam with your documentation all neatly complete and delivered than it is to scramble after the fact to try and minimize an exam finding.
But there is a silver lining...
Every bank we've done a deposit study for has documented, or even lengthened, their deposit average lives.