Consumers may hold stocks or bonds, houses, other fixed assets, bank accounts and CDs. They may even choose to stuff $100 notes into coffee cans and bury them in the garden.
Consider the differential behaviour of deposits when the economy is liquidity-trapped as opposed to situations where it is free to roam.
Macro drivers considered: nominal GDB, federal fund rate, 10-y and 30-y Treasury yields, oil price, median house prices, a broad exchange rate index for US, dollar, corporate profits and business fixed income
S&P500 share price index excluded because of a too big impact on resultant deposits in adverse and severely adverse scenarios
Model for total deposits that relates its growth rate to a number of economic drivers, financial market conditions indicators and bank related aggregate statistics. Includes lags of various lengths and is estimated using linear regression
Domestic total deposits modelled with logistic functional form and with GLM estimators for coefficients estimates.
Identify a group of 9 macro economic drivers with several lag versions
Most acute stress was during the Lehman Bros collapse
Very low interest rates have the effect of depressing growth in several key deposit categories
A tailored stress model will have the macro dynamics indentified in the paper.
The framework will take into account the past efforts of managers to grow the deposit book and potential management responses to the onset of stress.