A Guide to Behavioural Modelling
First published:
ISBN: 978-1-78272-404-9
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A Framework for Developing NMD Behavioural Models
Introduction
Insights on Banks’ Recourse to Behavioural Models from a Focused IRRBB Stress Test
Implementing Regulatory Guidance on IRRBB Behavioural Models: Challenges and Opportunities
The Stakeholders of Interest Rate Risk Behavioural Models
Governance of Behavioural Models
The Nature of IRRBB and Typical Metrics Employed
A Framework for Developing NMD Behavioural Models
The Literature on NMD Behavioural Models
Interest Rate Risk of Non-maturity Bank Accounts: From Marketing to Hedging Strategy
NMDs and IRRBB: A Methodological Proposal for a Behavioural Model
NMD Modelling: A Financial Wealth Allocation Approach
A Benchmark Framework for NMDs: An Application
NMD Behavioural Models Used in Marketing
The Validation of NMD Behavioural Models
The Choice of Maturity Profile in NMD Behavioural Models
Acknowledging the Elephant in the Room: The Mismatch Centre
Prepayment Risk Modelling for ALM, Finance and FTP: A Survival Model
Modelling of Prepayment on Fixed Rate Residential Mortgages: A Logistic Regression Approach
A Simple Approach to Modelling Prepayment Events
Integrating Credit Risk within the ALM Framework
Modelling Committed Credit Lines
Accounting of the Sight Deposit and Hedging
In a commercial bank, the main items subject to a behavioural model are non-maturity deposits (NMDs), which may include different types of products with no explicit cashflows. These products have an undefined contractual maturity: clients have the option to withdraw any amount from the account either without a notice period or just a very short one, and the bank has the option to change the interest paid on the deposit at any time within legal constraints.
The liquidity and interest rate risk management of these products are a crucial part of asset and liability management (ALM) and their modelling requires special attention as they represent the main source of funding for a commercial bank. The behavioural model for NMDs aims to identify which part of an NMD is unlikely to be withdrawn, and represents a stable source of funding (stable volume), and which is unlikely to be repriced and can be considered as a fixed rate liability (core volume) (BCBS, 2008; EBA, 2018). For the purpose of managing the liquidity risk, the stable volume is often considered as a medium long-term liability without any specific maturity, while for interest rate risk management the core volume is allotted
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