The Deposit Run That Wasn't (Yet)
A mid-sized community bank holds GHS 480m in total deposits. Of this, GHS 210m sits in demand deposits from 40 large corporate clients, GHS 180m in fixed-term retail deposits (average remaining maturity 7 months, 60% maturing within 90 days), and GHS 90m in stable small-savings accounts. Liquid assets are GHS 95m (GHS 60m central bank balances, GHS 35m short government securities). Over two weeks, three corporate clients withdrew GHS 55m combined, and social media reports about a competitor's failure have increased retail branch withdrawals. Management proposes selling the bank's GHS 120m held-to-maturity bond portfolio at a 9% loss to raise cash, and suspending term-deposit rollovers. The board asks you to assess the position before the next week's liquidity review.
1. Compute the bank's liquidity coverage position under stress and judge whether selling the HTM portfolio is the right first move.
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Step 1 - Stress outflow estimate. Assume 50% of the GHS 210m corporate demand deposits run (105m), 40% of the 90-day-maturing retail term deposits (0.6 × 180 = 108m × 40% = 43.2m), and 10% of stable savings (9m). Total stressed outflow ≈ GHS 157.2m.
Step 2 - Available liquidity. Current liquid assets are GHS 95m. Against 157.2m of outflows, the shortfall is roughly GHS 62m before any asset sales.
Step 3 - Cost of the proposed move. Selling the HTM portfolio crystallises a 9% loss on GHS 120m = GHS 10.8m, which hits capital and signals weakness to the market - likely accelerating the run.
Judgement: The bank should first use central bank facilities (discount window against the HTM portfolio rather than outright sale), activate committed lines, and negotiate with the largest corporate depositors. Outright sale is a last resort because the loss is permanent and publicly visible. The recommendation is a facility-based bridge, not a fire sale.
2. Management also wants to suspend term-deposit rollovers. Assess this proposal.
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Suspending rollovers is procyclical and dangerous. The GHS 108m of term deposits maturing within 90 days are already counted in the stress outflow; refusing to roll them converts a renewal decision into a forced withdrawal, effectively guaranteeing the outflow rather than managing it.
Better approach: offer a modest rate premium on rollover (e.g., +75–100 bps) to retain the 60% of maturing balances, and stagger maturities going forward. The cost of a rate premium on, say, GHS 80m retained for 90 days at +1% is roughly GHS 0.2m - far cheaper than the GHS 10.8m bond loss or the franchise damage of a rollover freeze.
Conclusion: Reject the rollover suspension; retain via pricing and relationship management.