Deposits-PaymentsMedium

3 min read · 527 words

What the seat actually does

This seat runs the accounts the money sits in and the systems it moves through. It looks like plumbing and it is the commercial heart of a bank: deposits are the cheapest funding there is, and a payment franchise is what keeps them there.

A balance is worth what it costs and how long it stays. A current account paying nothing and left alone for years is worth far more to a bank than a fixed deposit bought on a comparison site — same money, different business. Working out which is which is most of the job.

• Deposit products — current accounts, notice and term deposits, and the rate ladder between them.
• Payments — the rails money actually crosses, from card networks to instant transfers to the correspondent chain.
• Fraud and dispute, which is a running cost of the payment business rather than an exception to it.
• Liquidity reporting, because the regulator's view of a deposit is not the same as the customer's.

A day, and where it goes

• Flows. What came in and what went out overnight, and whether anything is moving differently from usual.
• Rates. What is being paid on each product, what competitors moved to, and what the bank's funding plan needs.
• Failed and stuck payments, which are somebody's rent.
• Fraud alerts, and the standing tension between stopping a payment and stopping the wrong one.

What it is measured on

• Balances and their cost, against what the bank would pay to fund itself in the market instead.
• Stickiness. How much of the book is expected to stay through a stress, which is a modelled number and therefore a contested one.
• Payment volume and failure rate, including how long a failure takes to resolve.
• Fraud losses, net of what is recovered and of what the bank is required to refund.

What it touches on this site

• The instruments — savings deposits, money market funds and commercial paper, the alternatives a treasurer weighs against a bank account.
• Where the cash actually sits — the comparison.
• The plumbing — clearing and settlement.
• When it goes wrong — 2023, where deposits left faster than any model had assumed they could, and 1974, which is why settlement risk has a name.

How it goes wrong

• The stickiness assumption fails. Deposits modelled as patient turn out to be one message and one phone away from leaving.
• Concentration. A book of a few large depositors behaves nothing like a book of many small ones, whatever the total says.
• Buying balances with rate. Money bought on price leaves on price, and it re-prices the whole book on the way in.
• A payment outage, which is the one failure every customer notices the same afternoon.

Concepts to master

• A deposit is repayable on demand and lent for years. That mismatch is the banking business and the banking risk at once.
• Settlement risk is real risk — see clearing and settlement.
• Liquidity is a condition, not a property. See liquidity.
• The price of money is set elsewhere — see monetary policy.