Digitalisation Challenges Banks’ Confidence in Long-Term Deposit Stability, Says ECB

The European Central Bank's Working Paper, produced by researchers from the ECB's Financial Stability Directorate and affiliated European institutes, investigates how euro-area banks estimate the maturity of deposits that legally have none. Written by Lara Coulier, Cosimo Pancaro, Livia Pancotto, and Alessio Reghezza, "Banking on Assumptions? How Banks Model Deposit Maturities" offers a revealing portrait of how banks use internal behavioural models to gauge the stickiness of non-maturing deposits (NMDs) and the potential implications for financial stability. Drawing on confidential supervisory data, the paper uncovers both sound modelling practices and worrying inertia amid the sharp monetary policy reversal of 2022–23.

The Mirage of "Stable" Deposits

Since the 2008 financial crisis, NMDs, like checking and savings accounts, have become a cornerstone of banks' funding structures. Though legally withdrawable on demand, these deposits often remain untouched for long stretches, giving them a behavioural maturity that differs from their contractual one. Banks exploit this stability by assigning deposits to different maturity buckets through internal models. Yet, these assumptions shape everything from liquidity management to interest-rate risk, meaning a miscalibration can distort balance sheets.

The ECB researchers find that only about 20% of NMDs are treated as having zero maturity, while roughly 10% are assigned maturities longer than seven years, and 1.5% exceed fifteen years, a striking sign that some banks consider such funds nearly permanent. The study warns that such optimism, while profitable during calm periods, can backfire when interest rates rise or depositor confidence falters.

Behind the Numbers

The research draws on an exceptional dataset covering 67 major banks across 16 euro-area countries between 2019 and 2023. These institutions represent about 72% of the euro-area banking system. Using supervisory databases, COREP and FINREP for capital and balance-sheet data, plus granular ECB datasets on deposit flows and interest rates, the authors analyse how maturity assumptions vary across banks and over time.

Their findings reveal a cautious approach, at least in normal times. Banks with more volatile or interest rate–sensitive deposit bases tend to assume shorter maturities, while those with household-dominated deposits, traditionally considered "stickier", report longer horizons. This suggests that most banks do reflect their risk profiles realistically. However, the true test came with the ECB's monetary tightening in 2022.

A Paradox in a Time of Tightening

When the European Central Bank raised rates for the first time in over a decade in July 2022, deposit stability should have weakened as customers sought higher yields. Surprisingly, the study finds that the average behavioural maturity of deposits actually increased by around 55 days. The authors explain this paradox by noting that banks mainly lost short-term, rate-sensitive deposits, while retaining long-term and more loyal ones, mechanically lengthening the average maturity.

Yet, the absence of proactive model revisions is the greater concern. Despite the radical change in the rate environment, banks did not shorten assumed maturities or update their internal behavioural models. The researchers interpret this either as complacency, a belief that past patterns would persist, or as institutional inertia, where models take too long to adapt. Both interpretations suggest a risk of underestimating future liquidity pressures if deposit outflows accelerate.

Digitalisation: A New Source of Fragility

The study's most forward-looking insight concerns digital deposits. Using confidential data from the ECB's 2023 Supervisory Review and Evaluation Process (SREP), the authors show that banks with a higher share of digital customers or online deposits assume shorter behavioural maturities, implicitly recognising that technology makes money more mobile. In a world of instant transfers and online savings apps, digitalisation amplifies depositor responsiveness to interest-rate changes, a trend already visible during recent banking stresses in the United States. The paper underscores that as digital channels expand, behavioural stability, once a reliable anchor of funding, may erode, increasing systemic sensitivity to monetary shifts.

Lessons for Financial Stability

The ECB researchers place their work within a long intellectual tradition examining the "deposit franchise", the intangible value banks derive from paying depositors less than market rates. Earlier studies, from Samuelson to Drechsler and Greenwald, described this franchise as both a cushion and a source of fragility. The ECB team extends that insight: behavioural modelling is now the frontline of bank resilience. If deposit maturities are overstated or updated too slowly, balance-sheet mismatches can quickly grow dangerous in volatile rate cycles.

Their conclusion is pointed. Banks' internal models generally align with their deposit structures, but they adapt too sluggishly to change. The sharp monetary tightening of 2022–23 exposed this rigidity. To safeguard stability, the authors urge supervisors and banks to recalibrate behavioural models more frequently, integrate digitalisation metrics, and treat NMD assumptions as dynamic, not static.