Retail Deposits are funds deposited using various financial products (current accounts, sight deposits) by physical persons (as opposed to corporates or other legal entities - see Wholesale Deposits) that can be withdrawn at arbitrary time with little or no penalty.
Retail Deposits Risk
The risk of sudden volume reductions in deposits, or that required deposit rates to maintain volumes will rise unexpectedly in response to market or firm specific events:
- Unexpectedly large volumes of deposit outflows from individuals, which may create Liquidity Risk. This might be less severe than Wholesale Funding Risk due to the smaller amounts involved
- Risk of synchronized withdrawals of funds (Bank Run) by a large number of retail clients, following news or rumors questioning the health of the firm (or related firms)
Issues and Challenges
- Deposits have indeterminate maturity which complicates their valuation as interest rate products