NMDs refer to non-maturity deposits which are share drafts, shares and money market accounts. These accounts have unique risk-reducing properties that are not always reflected an ALM analysis. The funds in an individual share draft account, for example, are immediately withdrawable and the balances tend to be quite volatile. However, when viewed collectively, such balances tend to be stable, dependable and they behave as if they are much longer-term deposits so they can be used to fund longer term loans on the asset side. Furthermore, such deposits usually pay little or no interest and when market rates increase, the rate on these products continues to be zero or very low and lag the market if it does increase. These attributes cause the account to function analytically in a manner similar to that of longer term, fixed-rate funding. This allows the institution to carry fixed-rate products such as mortgage loans on the asset side of the balance sheet.

The share account is similar except that the rate paid is usually higher and is changed only slightly faster in a changing rate environment. To the extent that the money market account is paying a higher and more competitive rate that is changed commensurate with market conditions, this account analytically behaves like a variable-rate liability so it does not have the risk-reducing attributes of share drafts and shares. From an ALM and NEV modeling standpoint, valuing NMDs at par does not reflect these desirable attributes. Risk measurement should take these attributes into account. However, since there are no uniform modeling standards, assumptions can vary widely and cause dramatic variations in the resulting NEVs.  We provide our clients with guidance on modeling NMDs upon request.