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DavidJN
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Posts: 242
Joined: July 14th, 2002, 3:00 am

Basel LCR deposit product

February 6th, 2018, 3:41 am

Old news surely, but a deposit product that seems a dead ringer for gaming the Basel LCR calculation is the constant maturity deposit. It originates as a 32-day deposit with a fixed rate. Every day the deposit is automatically re-struck with a new maturity of 32 days and possibly a new fixed rate. At any time the depositor or the borrower may elect to fix the final maturity in 32 days, after which the depositor's funds are returned.
 
This type of deposit has been said to have no option value because either side can elect to mature the deposit. Is there any reason why that statement might not be true?