The average maturity is one of several critical inputs necessary to compute the NMD valuation for NEV purposes. The deposit flows must be evaluated going back in time and in the context of a “closed sample”. This means that the historical behavior of a large group of accounts must be studied to determine when, on average, their deposits leave the institution. This behavior determines the estimated average maturity. There are other procedures that may be used but disruptions in the financial markets can cause the results to be skewed.  For example, during 2000-2002 when the stock market went through a difficult time and interest rates reached their lowest level in over 40 years, significant deposit inflows disrupted historical trends in deposit activity. When the markets returned to more normal conditions in 2003, these flows gradually reversed. The point here is that the estimation process using dollar flows may give rise to widely differing results depending on the sample period. This is a major problem when valuing NMDs.

Extensive research using historical data indicates that the average maturities of NMDs may be quite long, that is, in excess of five or six years.  However, the existence of the members’ option to withdraw funds should be taken into account because if the option is exercised by a large segment of the membership for whatever reason, the average maturity could shorten unexpectedly.  For this reason Brick & Associates recommends using conservative average maturities of three years for Shares and Share Drafts and two years for MMAs.