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…

Converging on resilience: Integrating CCR, XVA, and real-time risk management

However, CCR remains an essential element in banking risk management, particularly as it converges with valuation adjustments. These changes reflect growing regulatory expectations, which were further amplified by recent cases such as Archegos. Furthermore, regulatory focus seems to be shifting, particularly in the U.S., away from the Internal Model Method…

Confirmed Methodology for Credit Risk in EBA 2025 Stress Test 

The timelines for the entire exercise have been extended to accommodate the changes in scope: Launch of exercise (macro scenarios)Second half of January 2025First submission of results to the EBAEnd of April 2025 Second submission to the EBAEarly June 2025 Final submission to the EBAEarly July 2025 Publication of resultsBeginning of August 2025 …

Insights into cracking model risk for prepayment models

Within the field of financial risk management, professionals strive to develop models to tackle the complexities in the financial domain. However, due to the ever-changing nature of financial variables, models only capture reality to a certain extent. Therefore, model risk - the potential loss a business could suffer due to…

Budget at Risk: Empowering a global non-profit client with a clearer steer on FX risk

Charities and non-profit organizations face distinct challenges when processing donations and payments across multiple countries. In this sector, the impact of currency exchange losses is not simply about the effect on an organization’s financial performance, there’s also the potential disruption to projects to consider when budgets are at risk. Zanders…

Definition of Default

Regulations In 2016, the European Banking Authority published the final report on the Guidelines on the application of the definition of default. This guideline, commonly referred to as the guidelines on the new Definition of Default poses a challenge for banks in multiple ways. The first challenge is that their…

Liquidity Risk

Market Risk