4.3.7 Deposit Stability Identification

A stable deposit is a deposit whose outstanding balance is either fully or partially covered by deposit insurance provided by the relevant national deposit insurance organization and which satisfies one of the following conditions

It is held in a transactional account by the depositor

Or

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

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 Ownership Category

OFS LRM obtains 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.

• 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.

1. 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.
2. 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.

3. 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 as per the following procedure:

   1. Arrange all accounts in the descending order of their outstanding balances.
   2. Allocate the insurance limit available to account 1 to n – 1 as per the formula given below:
      
      
      
      

      Where,

      Insurance Limit Available : Limit available post allocation to previous accounts=Insurance Limit Availablex-1 – Insured Amount x-1

      x: Number of accounts up to the current account to which insured amount is to be allocated

      n: Total number of accounts of a customer which are eligible for insurance coverage under a given ownership category.

   3. Allocate the remaining available insurance to the last account i.e. account n
   4. If a part of the insurance limit remains unallocated after step 3, it is allocated to the first account which was skipped as part of step 2.

      Note:

      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.

      An illustration of this procedure is detailed as follows for all accounts belonging to customer A which are eligible for insurance coverage under the Single and Joint ownership categories. Each ownership category has a separate limit of €100,000.

      Table 3-4 Eligible for insurance coverage

      Account No.	Ownership Category	EOP Balance	Insurance Limit Available (b)	Remaining Insurance Limit (b - a)	Insured Amount	Uninsured Amount
      100017	Single	139483	100000	-39483	10426	129057
      200811		72918	100000	27082	72918	0
      200898		82043	27082	-54961	10426	71617
      319810		32055	27082	-4973	10426	21629
      289511		16656	27082	10426	10426	6230
      510007	Joint	59557	100000	40443	59557	0
      421678		25612	40443	14831	25612	0
      129840		20584	14831	-5753	0	20584

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

1. High Run-off Deposits

   Two additional stability criteria are supported for the deposit balances that are subject to higher outflows if they meet the regulatory criteria for such higher rates. The application identifies the less stable deposits that meet the higher outflow rate criteria as specified by the regulator and classifies them into the following 2 types:

   • High Run-off Deposits Category 1 – which meet the criteria for receiving a higher outflow rate of 15%
   • High Run-off Deposits Category 2 – which meet the criteria for receiving a higher outflow rate of 20%

   Deposits fulfilling the below mentioned criteria are classified as High run off category deposits:

   1. A. Total deposit of the customer is greater than EUR 500,000
   2. B. Is an internet only account
   3. C. Interest rate on deposits exceeds the average interest rate
   4. D. Interest rate on deposits is derived from the market variable flag
   5. E. Depositor is a resident of a third country, or the deposit is denominated in a currency other than Euro, or the domestic currency of a member state
   • Deposits fulfilling criteria A, or any two criteria from B to E are classified as High Run off category 1 deposits.
   • Deposits fulfilling criteria A and any other criteria from B to E, or fulfilling any three criteria from A to E are classified as High Run off category 2 deposits.
2. 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:

   • It is held in a transactional account by the depositor

     Or

   • The depositor has an established relationship with the reporting legal entity, which makes a withdrawal unlikely.

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

3. 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. Has available financial means, raised ex ante by contributions made by members at least annually
   2. Has adequate means of ensuring ready access to additional funding in the event of a large call on its reserves, including access to extraordinary contributions from member credit institutions and adequate alternative funding arrangements to obtain short-term funding from public or private third parties
   3. Ensures a seven working day repayment period from the date of application of the 3% outflow

      Such deposits receive a 3% run-off rate.

4. Less Stable Deposits

   All insured and uninsured deposit 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.

     Note:

     All the deposit type amount are calculated only on unencumbered EOP balance. Encumbered EOP balance or blocked amount is not considered if it is blocked/encumbered for more than the LCR horizon.