Results for ‘Modelling’

marcus evans: Credit Risk Management, Modelling and Validation

Default modelling in an age of agility

In brief: Prevailing uncertainty in geopolitical, economic and regulatory environments demands a more dynamic approach to default modelling. Traditional methods such as logistic regression fail to address the non-linear characteristics of credit risk. Score-based models can be cumbersome to calibrate with expertise and can lack the insight of human wisdom.…

Surviving Prepayments: A Comparative Look at Prepayment Modelling Techniques

In brief Prepayment modelling can help institutions successfully prepare for and navigate a rise in prepayments due to changes in the financial landscape. Two important prepayment modelling types are highlighted and compared: logistic regression vs Cox Proportional Hazard. Although the Cox Proportional Hazard model is theoretically preferred under specific conditions,…

Savings Modelling Solution

Savings Modelling Solution in action

A comprehensive overview of deposit modelling concepts

Navigating the intricacies of measuring and managing risks within non-maturing deposit portfolios poses a significant challenge for numerous banks. The inherent nature of these products introduces considerable uncertainty in predicting cash flows and interest rates. Yet, non-maturing deposits stand as a pivotal funding source for many (retail) banks.  Given the…

Savings modelling 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…

Savings modelling 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…

Savings modelling 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 modelling 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…

Savings modelling 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 modelling choices and parametrization of the deposit models to both internal and external validation and regulatory bodies. Traditionally, banks used historically…

ING’s perspective on deposit modelling: expert opinions, data, and common sense

In some European countries, savings rates appear to have hit a limit where they have stayed at a low level for a few years, despite interest rates moving down. This would suggest a structural shift where the relation between interest rates and savings rates has broken down. How can banks…

Why is modelling non-maturing deposits essential?

For banks, using variable savings as a source of financing differs fundamentally from ‘professional’ sources of financing. What risks are involved and how do you determine the return? With capital market financing, such as bond financing, the redemption is known in advance and the interest coupon is fixed for a…

A comprehensive guide to Credit Rating Modelling

For all the criticism that rating models and credit rating agencies have had through the years, they are still the most pragmatic and realistic approach for assessing default risk for your counterparties. Of course, the quality of the assessment depends to a large extent on the quality of the model…

Financial risk management modeling

When risk models are misused or flawed the consequences can be significant. We make sure your model landscape is continually optimized and well maintained.

Regulatory exemptions during extreme market stresses: EBA publishes final RTS on extraordinary circumstances for continuing the use of internal models

The Covid-19 pandemic triggered unprecedented market volatility, causing widespread failures in banks' internal risk models. These backtesting failures threatened to increase capital requirements and restrict the use of advanced models. To avoid a potentially dangerous feedback loop from the lower liquidity, regulators responded by granting temporary exemptions for certain pandemic-related…

The Ridge Backtest Metric: Backtesting Expected Shortfall

Challenges with backtesting Expected Shortfall Recent regulations are increasingly moving toward the use of Expected Shortfall (ES) as a measure to capture risk. Although ES fixes many issues with VaR, there are challenges when it comes to backtesting. Although VaR has been widely-used for decades, its shortcomings have prompted the…

Exploring IFRS 9 Best Practices: Insights from Leading European Banks

Across the whole of Europe, banks apply different techniques to model their IFRS9 Expected Credit Losses on a best estimate basis. The diverse spectrum of modelling techniques raises the question: what can we learn from each other, such that we all can improve our own IFRS 9 frameworks? For this…

SaaS PRIIPS

BASEL IV & Real Estate Exposures 

The Basel IV reforms published in 2017 will enter into force on January 1, 2025, with a phase-in period of 5 years. These are probably the most important reforms banks will go through after the introduction of Basel II. The reforms introduce changes in many areas. In the area of credit…

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