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Adjustment Policy of Deposit Rates in the Case of Swiss Non-maturing Savings Accounts

abstract Retail banks usually apply simple linear regression models for describing the dynamics of the deposit rates of non-maturing accounts (NMA) like savings deposits. Thus, typical patterns like asymmetry or rigidity that banks follow when adjusting their deposit rates are ignored. This is insofar surprising, as the asymmetric deposit rate adjustment affects the pricing of embedded options for NMA. In this work we contribute to the elimination of these inconsistencies. Based on data for deposit rates from a representative sample of Swiss banks we provide a strong evidence for both asymmetric adjustment and rigidity pattern. Our proposed modeling approaches reveal that the strategies of Swiss banks to adjust deposit rates are regime dependent. In times of market stress, Swiss banks are tight to market rates; however, in normal regimes this is not observed.
   
type journal paper
   
keywords non-maturing accounts, deposit rates, asymmetries, rigidity;
   
project Interest rate risk hedging of a bank balance (Phase 2)
language English
kind of paper journal article
date of appearance 4-4-2013
journal Journal of Applied Finance & Banking
publisher Scienpress (London UK)
ISSN 1792-6580
ISSN (online) 1792-6599
volume of journal 3
number of issue 3
page(s) 271-323
review blind review
   
citation Paraschiv, F. (2013). Adjustment Policy of Deposit Rates in the Case of Swiss Non-maturing Savings Accounts. Journal of Applied Finance & Banking, 3(3), 271-323.