Core Deposits
| Core Deposits |
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Core Deposits are used mostly in the banking industry as bank's gross or total dollar value of deposit. The most common this term is connected with bank's savings, checking, and time deposit accounts[1]. According to John L. Cleary II "Core deposits are of particular importance to banks because they provide a low cost source of funds"[2]. Core deposits term is a basic tool when it comes to funding motrgages[3].
Core deposits at the bank
According to Timothy W. Koch, S.Scott MacDonald "Banks with large amount of funding from core deposits similarly have better liquidity than banks without significant core deposit"[4]. Core deposits are more dependent on fees charged, services rendered and location of the banks than on interest rate. If core deposits are bigger in the funding mix then there is less chance for unexpected deposit withdrawals[5]. Mainly there are two types of business strategies, one of them contains core deposits[6].
- “Traditional banks” possess a big supply of excess core deposits because core deposits are less sensitive to fluctuations in market interest rates and external finance premium is significantly lower. These banks have a business strategy of giving loans in subprime groups with core deposit funding.
- “Market-based banks” are financed from managed commitments.
Core deposits intangible asset
Bank acquisitions accounted for under the purchase method of accounting are using core deposit intangible asset. GAAP (Generally Accepted Accounting Principles) proclaim that acquisition is accounted for on the books of the acquirer by putting down the fair values of the assets acquired and the current value liabilities assumed. The item which was putting down generally has tangible and intangible assets. Core deposits are not legally restricted. One of the advantages of a core deposit is that it is based on long-term and stable customer relationships. So that the bank can expect the funds to be used for many years. If the bank has a good relationship with the customer, it is possible to expect cooperation over a longer period of time[7].
References
- Black L. (2009), Core Deposit Funding of Subprime Mortgages and the Effect of Monetary Policy Board of Governors of the Federal Reserve System Washington, DC 20551, August 2009
- Cleary II J.L. (1990), Core Deposit Base: Goodwill or Not Goodwill – Is That the Question? Catholic University Law Review, Volume 39, Issue 3 Spring 1990, Article 6
- Koch T.W. (2014), Bank Management Eighth Edition, Cengage Learning, United States of America 2014
- Thornton F.A. (1989), Bank Core Deposit Intangibles: A Conceptual View, Accounting Horizons Sarasota, Tom 3, Nr/wydanie 2, June 1989
- Whalen R.C. (2011), What is a Core Deposit and Why Does It Matter? Legislative and Regulatory Actions Regarding FDIC-insured Bank Deposits Pursuant to the Dodd-Frank Act Networks Financial Institute At Indiana State University
Footnotes
Author: Aleksandra Majcher
