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Savings modelling solution

Enabling banks to build robust models for on‑demand savings

SAVINGS MODELLING SOLUTION

Is your on-demand savings model in line with regulatory requirements and market practice?

On-demand savings are an important source of funding for retail banks. A robust behavioural model is needed to realize an optimal profit margin and effectively hedge interest rate risk, while satisfying regulatory requirements (as imposed by EBA, BCBS) and internal scrutiny from model validation and audit. Many banks struggle to find a practical and auditable approach to behavioural modelling.

Transfer pricing documentation

50%

of banks indicate their behavioural models do not meet regulations

Transfer pricing technology

53%

of banks believe their model documentation is not detailed enough

The savings modelling solution enables ALM, risk, and treasury managers to improve, calibrate and run their models, using a robust modelling platform and the support of our experienced consultants

Improve
Review and enhance your existing on-demand savings model

  • Series of workshops with our experts
  • Increase knowledge on modelling challenges
  • Compare outcomes of a range of modelling options at the click of a button
Calibrate
Estimate model parameters based on historical data and forward-looking business inputs

  • Upload historical account data and market data
  • Add business input on the client rate dynamics
  • Backtest model performance
  • Gain full control of your (re)calibration process
Run
Execute day-to-day risk management on your savings portfolio

  • Calculate all relevant risk and performance metrics for internal and external reporting, stress testing and hedging
  • Report value (EVE, NPV, bpv), earnings (NIM) and corresponding @Risk measures
  • Provide management with a range of valuable insights

BENEFITS

Experience the benefits of a robust savings modelling solution



  • Open up a wide range of model enhancement and analysis capabilities, by leveraging our flexible modelling platform and the expertise of our consultants
  • Achieve internal and external model compliance through well-substantiated deposit modelling that is in line with your organisation’s size and complexity
  • Store, calibrate and run your models in a safe cloud-based environment, reducing operational risks and limiting required IT capacity

MODELLING APPROACH

Built on best practice modelling insights based on experiences at 15+ banks

Configure a model concept that matches your portfolio dynamics and model purpose, using the support of our experts

Cash flow model
Separately model the behavioural components (client rate, volume) with respect to underlying explanatory factors. Suited to measure the (non-)parallel risk profile of non-maturing deposits, but not for internal risk transfer purposes Cash flow model
Replicating portfolio
Translate the interest rate and/or liquidity-typical profile of deposits into a portfolio of fixed-rate contracts. Suited to calculate the value risk profile and for internal risk transfer, but does not take into account behavioral modelling, earnings (at-risk) and non-parallel risk calculations. Replicating portfolio
Hybrid model
Combine the cash flow and replicating portfolio model. Include the duration or bpv resulting from the cash flow model as a constraint in the replicating portfolio construction process. Suited to measure the (non-)parallel risk profile and for internal risk transfer.

Formulate well-substantiated modelling assumptions and understand the impact on the resulting risk profile

Determine the forecasting horizon for the construction of notional and coupon cash flows. Outflow estimations for longer tenors is uncertain, but value can still be derived from the funding.
Determine the forecasting horizon for the construction of notional and coupon cash flows. Outflow estimations for longer tenors is uncertain, but value can still be derived from the funding.
If available, estimate model relations based on historical client rates, market rates and account balances. Consider to include scenario analysis to choose models that match expert expectations.
Consider to ‘amortize’ core (i.e. non-repricing and stable) volume, to prevent bullet payments at the modelling horizon.
Consider to ‘amortize’ core (i.e. non-repricing and stable) volume, to prevent bullet payments at the modelling horizon.
Model the volume outflow to derive notional cash flows or construct outflow constraints for the replicating portfolio development. Consider outflows on portfolio level or apply vintage (cohort) analysis.
Possible flooring approaches are a ‘soft’ floor (driven by fear for reputational damage, but open to decrease client rate if market rates decrease further and competitors follow) and ‘hard’ floor (driven by regulatory/strategic reasons).
Client rate modelling incorporation of floors
Possible flooring approaches are a ‘soft’ floor (driven by fear for reputational damage, but open to decrease client rate if market rates decrease further and competitors follow) and ‘hard’ floor (driven by regulatory/strategic reasons).
Stability of model outcomes (duration)
As it is challenging to model NMD convexity effects with a replicating portfolio, the model might result in stable duration/DV01 outcomes over time. However, this can be at the cost of accurate modelling of (non-linear) behavioural risk.
Current accounts modelling (incl. 'hidden savings')
Next to volatile (non-stable) volume, current accounts can contain an interest rate-sensitive/insensitive portion. With savings rates approaching current account rates, the interest rate-sensitive portion can be considered as ‘savings substitution’ (expected to flow out to savings accounts when client rates increase).

A robust cloud-based modelling platform

Upload your data in a secure environment, calibrate your model, and retrieve results, all within a couple of hours. Experience full model servicing, from model (re)development to (re)calibration and ad-hoc analyses for daily risk management.

OUR EXPERIENCE

Read our related publications and see what we have done for our clients.