15.2.2.5 Deposit Stability Identification

The first step in identifying deposit stability is to allocate deposit insurance limit at an account level. Deposit insurance limit is typically available at a legal entity-customer combination and sometimes at a legal entity-customer-ownership category combination. The application requires users to provide the following parameters for the purposes of allocating insurance at an account level:

1. Ownership Category

   OFS LRM assumes the insurance limit for each customer per ownership category level as download. Ownership categories include single accounts, joint accounts, trusts etc. Some jurisdictions provide for a separate limit to a customer based on the ownership category of accounts. If a particular customer gets a single limit irrespective of whether the accounts are held as single, joint or a combination, the ownership category should have a single default value.

2. Customer Type

   This is a list of customer types who are eligible to be covered under the respective jurisdiction’s deposit insurance scheme. The insurance limit is assigned to each customer whose customer type matches one of the types that are covered by the deposit insurance.

3. Product Type

   This is a list of product types that are covered under the respective jurisdiction’s deposit insurance scheme. The insurance limit is allocated on priority basis or proportionately to only those accounts of a customer whose product types matches those that are covered by the deposit insurance.

4. Product Type

   Prioritization The sequence in which the insured amount is to be allocated to each product type is captured. For instance, the product prioritization may be specified as current account, savings account and term deposit. This means that the insured amount is allocated first to current account held by the customer. After current accounts have been fully covered, the remaining amount is allocated to savings accounts and finally to term deposits.

   Note:

   In case product type prioritization is not specified, the default allocation will be proportionate to the EOP balance of each account irrespective of the product type.
5. Currency Eligibility for Insurance

   This is a list of currencies in which the accounts are denominated that are eligible for insurance coverage under a deposit insurance scheme. Some jurisdictions cover foreign currency deposits under their deposit insurance schemes. If eligible currencies are specified for the purpose of insurance, then the insured balance is allocated to all accounts belonging to the particular legal entity which have the associated attributes required for assigning the insured balance.

6. Insurance Limit

   This is the deposit balance of a given customer that is covered under the deposit insurance scheme. Customers having account in multiple legal entities get a separate deposit insurance limit per legal entity. Once the insurance parameters are provided, the application allocates the insurance limit to all eligible accounts for a particular customer under a given ownership category in the proportion of the EOP balance of the eligible accounts. An illustration of the deposit allocation is provided below. Suppose a customer has 10 insurance eligible accounts, the total value of which amounts to € 150000. The insurance limit for the customer is € 100000. The ratio of insurance limit to balance is 1:1.5 which means that 66.67% of the deposit value is covered by insurance. This is allocated to each account in the same proportion as illustrated below:

   Table 14-1 Insurance Limit

   Account Number	EOP Balance	Insured Amount	Uninsured Amount
   1	5000	3333	1667
   2	20000	13333	6667
   3	7000	4667	2333
   4	12000	8000	4000
   5	106000	70667	35333

   In case of joint accounts, the EOP balance is either allocated equally to all account holders or allocated to the primary account holder only based on user selection. This amount is then used to determine total balance eligible for insurance allocation.

Once the insurance limit is allocated at an account level, the application determines the deposit stability as follows:

1. Stable Deposits
   A stable deposit is that portion of a deposit which is fully covered by deposit insurance provided by an effective deposit insurance scheme or a public guarantee that provides equivalent protection and which satisfies one of the following conditions:

   1. It is held in a transactional account by the depositor

      Or,

   2. The depositor has an established relationship with the reporting legal entity.

      In case of BIS, if a deposit is partially covered by insurance and meets the other criteria, the insured portion of such deposits is considered stable while the uninsured portion is considered less stable.

      Stable deposits receive a 5% run-off rate unless they meet additional deposit criteria.

2. Highly Stable Deposits
   All “stable” deposits identified as per the criteria specified in point 1 above are classified as meeting additional insurance criteria if the insurance scheme under which they are covered satisfies the following conditions:

   1. Is based on a system of prefunding via the periodic collection of levies on banks with insured deposits.
   2. Has adequate means of ensuring ready access to additional funding in the event of a large call on its reserves, for example, an explicit and legally binding guarantee from the government, or a standing authority to borrow from the government.
   3. Access to insured deposits is available to depositors in a short period of time once the deposit insurance scheme is triggered.

      Such deposits receive a 3% run-off rate.

3. Less Stable Deposits
   All insured and uninsured deposit or funding balances that do not meet the stable deposits criteria specified earlier are classified as less stable deposits: This includes:

   • Insured balance of deposits meeting stable deposits criteria but denominated in ineligible foreign currencies.
   • Uninsured balance of deposits meeting stable deposits criteria.
   • Insured balance of deposits which are not transactional account and the customer has no established relationship with the bank.
   • Deposit balance where the insurance coverage status is Uninsured.

     Such deposits receive a 10% run-off rate.

4. High Run-off Category Deposits
   Three additional stability criteria are supported for uninsured deposit balances. This is optional for a bank.

   • High Run-off Deposits Category 1
   • High Run-off Deposits Category 2
   • High Run-off Deposits Category 3
     This classification is dependent on the aggregated funding received from each customer. The steps involved are as follows:

     1. Identify all accounts of a given customer which are liabilities of the bank
     2. Calculate the aggregated funding from a customer as follows:

        Figure 14-8 Aggregated Funding

        
        

        

        
        

        Where, I = Accounts of a given customer which are liabilities of the bank

     3. Assign the uninsured balance to one of the high Run-off categories as follows:
        • If aggregated funding from a customer <= EUR 500,000, the uninsured amount from each relevant account is assigned to High Run-off Deposits Category 1
        • If aggregated funding from a customer > EUR 500,000 < EUR 1,000,000, the uninsured amount from each relevant account is classified as High Run-off Deposits Category 2
        • If aggregated funding from a customer >= EUR 1,000,000, the uninsured amount from each relevant account is classified as High Run-off Deposits Category 3

        Table 14-2 Assigning uninsured balance

        Customer	Account	Insured Balance (Account)	Uninsured Balance (Account)
        Customer 1	Account 1	450000	550000
        Customer 2	Account 2	1000000	200000
        Customer 2	Account 3	800000	300000

        Table 14-3 Uninsured Amount

        Deposits	Uninsured Amount
        High Run-off Deposits Category 1	500,000 (200000 + 300000)
        High Run-off Deposits Category 2	550,000

        Note:

        The High Run-off category is defined at Customer level. The Uninsured balance of each account falling under a customer will be directly moved to High-Run off category 1, 2, 3.