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Define core deposits of a bank. Define purchased deposits. Why are purchased deposits generally considered to...

Define core deposits of a bank. Define purchased deposits. Why are purchased deposits generally considered to be more risky than core deposits?

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Answer #1

core deposits

A bank considers its core deposits to be a reliable source of funding,and offer numerous advantages to financial institutions, including predictable costs, and reliable gauges of customer loyalty and also help in minimising the risk in liquidity

purchase deposits

Purchased funds are a bank's rate sensitive source of funding, and due to this rate sensitivity it is considered to be more expensive sources of funds.

Purchased funds are mostly withdrawn/replaced immediately when the rate of the competitive instruments (funding sources) change. The interest rates for the purchased funds is higher as compared to core deposits.

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