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https://hdl.handle.net/2142/19526
Description
Title
Retail deposit pricing and interest rate risk
Author(s)
Hutchison, David Edgar
Issue Date
1993
Doctoral Committee Chair(s)
Pennacchi, George G.
Department of Study
Finance
Discipline
Finance
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Finance
Language
eng
Abstract
"Retail or consumer deposit pricing has only recently been fully deregulated. Subsequently, there has been little academic work done on the pricing of such deposits or the interest rate risk posed by such deposit balances. In this thesis we address the pricing of retail deposits in a dynamic, general equilibrium framework in order to draw conclusion regarding the important time series relationship between deposit and competitive market interest rates. Subsequently, we use this work as the theoretical basis for the construction of appropriate interest rate risk measurement methodologies in such retail deposit markets. We employ our methodology to measure interest rate risk in instantaneous maturity markets, markets for MMDA and NOW accounts, for example, and in discreet maturity markets such as those for consumer CDs. The novelty in our approach is the recognition that retail deposit rates are not determined in perfectly competitive markets whereas traditional interest rate risk or duration analyses implicitly assume that markets are perfectly competitive. We derive a methodology that measures the value of monopoly (quasi) rent streams, which is the ""going concern"" value of the bank attributable to activities in deposit markets. Our methodology leads to natural measures of the interest rate risk inherent in the bank's economic value that can be attributed to retail deposit market access."
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