The Handbook of ALM in Banking
First published:
ISBN: 9781782720119
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The Modelling of Non-Maturity Deposits
George Soulellis
Introduction
New Regulatory Developments for Interest Rate Risk in the Banking Book
Bank Capital and Liquidity
ALM within a Constrained Balance Sheet
Measuring and Managing Interest Rate and Basis Risk
The Modelling of Non-Maturity Deposits
Modelling Non-Maturing Deposits with Stochastic Interest Rates and Credit Spreads
Managing Interest Rate Risk for Non-Maturity Deposits
Optimising Risk and Return of Non-Maturing Products by Dynamic Replication
Hedge Accounting
Bank Runs and Liquidity Management Tools
Strategies for the Management of Reserve Assets
Optimal Funding Tenors
Instruments for Secured Funding
Funds Transfer Pricing in the New Normal
Capital Instruments under Basel III
Understanding the Price of New Lending to Households
Within the banking industry, accurate liabilities or deposit-based expected life modelling is widely considered a prerequisite to sound asset–liability management. Its importance in mitigating interest rate risk is undisputed. However, the techniques associated with this are still evolving. This chapter focuses on establishing a concrete analytic methodology to estimating future expected deposit balance trajectories and their associated expected remaining life. We outline a comprehensive approach to guide the reader on how to define the event variable, establish a robust segmentation scheme, introduce key parameters in a time-series multivariate regression and validate and monitor the model on an ongoing basis to ensure its appropriateness.
THE IMPORTANCE OF MODELLING DEPOSIT BALANCES
Many banks worldwide are funded with non-maturity deposits, and the way in which their average lives are modelled has significant implications when estimating their value and their effectiveness in the management of interest rate risk. For example, modelling non-maturity deposits with too short an average life will subject the bank to rising interest rate risk exposure. Forecasting the expected
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