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Why Are Savings Accounts Perceived as Risky Bank Products?

Listed author(s):
  • Hana Džmuráňová
  • Petr Teplý
Registered author(s):

    Risk management for banking products can be challenging in general, but is even more risky in a global, low interest rate environment. This paper deals with the risk management of savings accounts, a bank product defined as a non-maturing account with embedded option that bears a relatively attractive rate of return. We focus on the interest rate risk of savings accounts. By constructing the replicating portfolio and simulating market rates and client rates, we show that under the severest scenario, some banks in the Czech Republic might face a significant capital shortage in next two years if market rates start to increase dramatically from recent low levels. We conclude that savings accounts are riskier liabilities than current accounts and term deposits for banks. Moreover, we propose imposing stricter regulation and supervision on these bank products since they might increase systemic risk of the Czech banking sector in coming years.

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    Article provided by University of Economics, Prague in its journal Prague Economic Papers.

    Volume (Year): 2016 (2016)
    Issue (Month): 5 ()
    Pages: 617-633

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    Handle: RePEc:prg:jnlpep:v:2016:y:2016:i:5:id:578:p:617-633
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    1. Jiri Witzany, 2013. "A Note on the Vasicek’s Model with the Logistic Distribution," Working Papers IES 2013/01, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jan 2013.
    2. Barbora Šútorová & Petr Teplý, 2014. "The Level of Capital and the Value of EU Banks under Basel III," Prague Economic Papers, University of Economics, Prague, vol. 2014(2), pages 143-161.
    3. Kalkbrener, Michael & Willing, Jan, 2004. "Risk management of non-maturing liabilities," Journal of Banking & Finance, Elsevier, vol. 28(7), pages 1547-1568, July.
    4. Konstantijn Maes & Thierry Timmermans, 2005. "Measuring the interest rate risk of Belgian regulated savings deposits," Financial Stability Review, National Bank of Belgium, vol. 3(1), pages 137-151, June.
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