Results for ‘nmd’

Webinar – Challenges in NMD modeling: Can Machine Learning provide a solution?

Challenges in NMD modeling: Can Machine Learning provide a solution?

EBA’s recent heatmap publication reiterated the importance of modeling Non-Maturing Deposits (NMDs) in the context of balance sheet management. This on-demand webinar will explore the implications of this publication on NMD modeling, from the perspective of both interest rate risk and liquidity (risk) management. We will address common industry challenges…

Why developing a non-maturing deposit model should be the top priority for banks in the Nordics 

First and foremost, the long period of low and even negative swap rates was followed by strongly rising rates and a volatile market, which impacted the behavior of both customers and banks themselves. At the same time, regulatory developments, initiated by EBA’s new IRRBB guidelines, have shifted the banks’ focus…

The EBA’s New IRRBB Heatmap Implementation: Reporting on Key Objectives 

The implementation update covers observations, recommendations and supervisory tools to enhance the assessment of IRRBB risks for institutions and supervisors.1 Main topics include non-maturing deposit (NMD) behavioral assumptions, complementary dimensions to the SOT NII, the modeling of commercial margins for NMDs in the SOT NII, as well as hedging strategies.  …

Savings modeling series: The impact of savings rate floors on balance sheet management

The low or even negative market rates in many Western European countries significantly affect banks’ pricing and funding strategy. Many banks hesitate to offer negative rates on non-maturing deposits (NMD) to retail customers. In some markets, like in Belgium, regulatory restrictions impose a lower limit on the savings rate that…

The EBA expects banks to expand their CSRBB framework

The current version of the IRRBB Guidelines, published in 2018, came into force on 30 June 2019. At that time, the IRRBB Guidelines were aligned with the Standards on interest rate risk in the banking book, published by the Basel Committee on Banking Supervision (in short, the BCBS Standards) in…

European committee accepts NII SOT while EBA published its roadmap for IRRBB

The European Committee (EC) has approved the regulatory technical standards (RTS) that include the specification of the Net Interest Income (NII) Supervisory Outlier Test (SOT). The SOT limit for the decrease in NII is set at 5% of Tier 1 capital. Since the three-month scrutiny period has ended it is expected that…

Calibrating deposit models: Using historical data or forward-looking information?  

After a long period of negative policy rates within Europe, the past two years marked a period with multiple hikes of the overnight rate by central banks in Europe, such as the European Central Bank (ECB), in an effort to combat the high inflation levels in Europe. These increases led…

Savings modeling series – How to determine core non-maturing deposit volume?

Identifying the core of non-maturing deposits has become increasingly important for European banking Risk and ALM managers. This is especially true for retail banks whose funding mostly comprises deposits. The last years, the concept of core deposits was formalized by the Basel Committee and included in various regulatory standards. European…

A change in perspective – How adopting a forward-looking approach can enhance non-maturing deposit modeling

This whitepaper explores the evolution of Non-Maturing Deposit (NMD) modeling, a crucial tool for banks aiming to manage risks within their deposit portfolios. Traditionally, banks have relied on historical data to predict deposit behaviors and volume trends. However, recent market fluctuations have highlighted the limitations of this backward-looking approach, pushing…

EBA published final package of IRRBB/CSRBB guidelines

On 20 October 2022, the European Banking Authority (EBA) published the final package of guidelines for the management of Interest Rate Risk in the Banking Book (IRRBB) and the Credit Spread Risk in the Banking Book (CSRBB). The package includes: Final guidelines for IRRBB and CSRBB (link)i Regulatory Technical Standards…

Savings modeling series – Calibrating models: historical data or scenario analysis?

One of the puzzles for Risk and ALM managers at banks the last years has been determining the interest rate risk profile of non-maturing deposits. Banks need to substantiate modeling choices and parametrization of the deposit models to both internal and external validation and regulatory bodies. Traditionally, banks used historically…

Savings modeling series: Non-maturing deposits model concepts

Are you interested in a more in-depth comparison of deposit modeling concepts? Click here. For banks with significant non-maturing deposits portfolios, Risk Management functions need to have a robust behavioural risk model. This model is required for Interest Rate Risk in the Banking Book reporting, hedge, stress testing, risk transfer, and…

Savings modeling series – How ‘hidden savings’ impact the risk profile for banks

WHAT ARE HIDDEN SAVINGS? Because the low or zero rates offered by banks provide little motivation to move money to savings accounts, many banking customers use their current accounts as savings account. It is very likely that customers will move part of this money to savings accounts when rates increase…

Capturing migration dynamics in deposits – How migration modeling can help banks navigate shifts in customer’s product preferences

This whitepaper explores the crucial role of migration modeling in today’s rapidly changing deposit environment. As rising interest rates drive shifts in customer behavior, traditional deposit models fall short of capturing the full scope of migration dynamics. To remain competitive, banks need more forward-looking models that better reflect these shifts.…

Achieving ALM Excellence through Bank Treasury Frameworks

Managing banking book risk remains a critical challenge in today’s financial markets and regulatory environment. There are many strategic decisions to be made and banks are having trouble applying homogeneous hedging approaches across their balance sheet. As shown in the EBA’s IRRBB implementation heatmap of last February, hedging strategies and…

Risk Mitigation Accounting (RMA) Exposure Draft amending IFRS9: Key Impacts and Practical Challenges

Executive Summary RMA will be an optional model within IFRS 9 for net interest rate repricing risk1 in dynamic, open portfolios (for example, where new deposits or loans are continually added and existing positions mature or reprice). The IASB also proposes withdrawing the IAS 39 macro hedge requirements (and the…