IDEAS home Printed from https://ideas.repec.org/p/fau/wpaper/wp2014_09.html
   My bibliography  Save this paper

Risk management of savings accounts

Author

Listed:
  • Hana Dzmuranova

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)

  • Petr Teply

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic and Department of Banking and Insurance Faculty of Finance and Accounting, University of Economics University of Economics, Prague)

Abstract

This paper deals with the risk management of savings accounts. Savings accounts are non-maturing accounts bearing a relatively attractive rate of return and two embedded options: a customer’s option to withdraw money at any time and a bank’s option to set the deposit as it wishes. The risk management of saving accounts remains a big challenge for banks and simultaneously raises serious concerns by some regulators. In this paper, we focus on the interest rate risk management of savings accounts. By constructing the replicating portfolio and simulating six scenarios for the market rate and client rates, we show that under the severest scenario, some banks in the Czech Republic might face a capital shortage up to 22% in next two years if market rates start to increase dramatically. We conclude that savings accounts are risky instruments that cannot be hedged by standard risk mitigation techniques. Since savings accounts in the Czech Republic are not subject to any special regulation yet, we propose imposing stricter regulation and supervision (the Belgium framework might be an inspiring model to consider).

Suggested Citation

  • Hana Dzmuranova & Petr Teply, 2014. "Risk management of savings accounts," Working Papers IES 2014/09, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Apr 2014.
    • Handle: RePEc:fau:wpaper:wp2014_09
    as

    Download full text from publisher

    File URL: http://ies.fsv.cuni.cz/sci/publication/show/id/5063/lang/cs
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    demand deposits; interest rate risk; replicating portfolio; risk management; savings accounts; simulations;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fau:wpaper:wp2014_09. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Natalie Svarcova (email available below). General contact details of provider: https://edirc.repec.org/data/icunicz.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.