Customer Benefits

The mCD provides bank customers with more choice. It is a third option between a low paying demand deposit and a higher earning but illiquid term deposit.  It provides a deposit that:

• earns interest at a competitive rate

• is tradeable for cash at any time

• is open to a broad range of depositors (retail and wholesale), and

• always has a value equal to the original deposit amount, so it remains at par.

It can be traded from the bank's standard online banking interface.  Therefore, despite its limited redemption rights, the mCD can claim most of the attributes of a demand deposit and is “money-like”.  

Industry Benefits

The mCD improves the stability of the banking sector by reducing deposit run-off risk while minimising the cost of issuing additional long-term debt. The rate payable by the mCD is expected to be higher than that of a demand deposit, but lower than that of an equivalent term CD or capital market issue.  Banks should also be able to manage the mCD rate payable through its own trading.

Frequent trading by large depositors and selected retail depositors on the single Exchange, should increase the probability of successful matches and the liquidity of the mCD. This should reduce the mCD’s cost.  

Regulatory Benefits

An mCD with an evergreen term in excess of 30 days will have no Basel III LCR requirement as it can not run-off within 30 days.  

Similarly, any mCD with a notice period in excess of 12 months provides funding with a residual term in excess of 12 months and should improve the issuing bank’s Basel III NSFR metric.  The mCD therefore provides the bank with an ideal funding source for floating rate, medium and long term business loans.