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Bowling Green State University

Clemson University

School of Accountancy and Finance

FIN 4080Management of Financial InstitutionsDr. Lucy Chernykh

DEPOSIT MANAGEMENTOutline Liability management: Overview

Types of deposit accounts

Deposit pricing

Deposit insurance

Disclosure of deposit terms Current trendsLiability Management

Key Issues in Deposits ManagementTypes of Deposit AccountsTransaction (Payment or Demand) Deposits

Nontransaction (Savings or Thrift) Deposits

Types of Transaction DepositsNoninterest-Bearing Demand Deposits

Interest-Bearing Demand Deposits

Types of Nontransaction DepositsCore DepositsCore deposits are stable deposits that are not highly interest rate-sensitive.

Interest Rates on Deposits Depend On:Estimating the Marginal Cost of a Deposit Account

WhereI = current market interest rate on type of depositS = servicing costs of deposits (expressed as percentage of each dollar acquired)DI = deposit insurance premium (expressed as percentage of each insured dollar)RR = Fed reserve requirement of type of depositExample. Calculation of MCD

Current market interest rate on NOW account is 6.5%

Cost of servicing the NOW account is 3.4%

Deposit insurance premium is 0.254%

Fed reserve requirement is 10%The marginal cost of a NOW account deposit is: FDIC Insurance CoverageFDIC is an independent agency of the US government that protects the funds depositors place in banks and savings associations.FDIC insurance covers all deposit accounts, including:The insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.Example 1: Single account

Account TitleDeposit TypeAccount Balance

Mary JonesMMDA$15,000

Mary JonesSavings$20,000

Mary JonesCD$200,000

Mary's Memories (A Sole Proprietorship)Checking$25,000


Amount Insured

Amount Uninsured

Example 2: Joint AccountsAccount TitleDeposit TypeAccount BalanceShare Per Owner

Mary and John SmithMMDA$230,000

Mary or John SmithSavings$300,000

Mary or John or Robert SmithCD$270,000


Insurance coverage for each owner is calculated as follows:

OwnersTotal of All Ownership SharesAmount InsuredAmount Uninsured





Deposit Insurance Fund (DIF)The Dodd-Frank Act requires that the reserve ratio reach 1.35% by September 30, 2020.Banks, not taxpayers, are entirely responsible for covering all of the FDICs expenses, including the recapitalization of the fund. Truth in Savings ActConsumers must be informed of the deposit terms before they open a new accountDepository Institutions Must Disclose:

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