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Why Are Savings Accounts Perceived as Risky Bank Products?

Author

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  • Hana Džmuráňová
  • Petr Teplý

Abstract

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.

Suggested Citation

  • Hana Džmuráňová & Petr Teplý, 2016. "Why Are Savings Accounts Perceived as Risky Bank Products?," Prague Economic Papers, Prague University of Economics and Business, vol. 2016(5), pages 617-633.
    • Handle: RePEc:prg:jnlpep:v:2016:y:2016:i:5:id:578:p:617-633
    DOI: 10.18267/j.pep.578
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    References listed on IDEAS

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    1. Barbora Šútorová & Petr Teplý, 2014. "The Level of Capital and the Value of EU Banks under Basel III," Prague Economic Papers, Prague University of Economics and Business, vol. 2014(2), pages 143-161.
    2. Tsang, Eric W. K., 2014. "Old and New," Management and Organization Review, Cambridge University Press, vol. 10(03), pages 390-390, November.
    3. 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.
    4. Kalkbrener, Michael & Willing, Jan, 2004. "Risk management of non-maturing liabilities," Journal of Banking & Finance, Elsevier, vol. 28(7), pages 1547-1568, July.
    5. Martin Mandel & Vladimír Tomšík, 2014. "Monetary Policy Efficiency in Conditions of Excess Liquidity Withdrawal," Prague Economic Papers, Prague University of Economics and Business, vol. 2014(1), pages 3-23.
    6. 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.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Jiøí Witzany & Martin Diviš, 2022. "Interest Rate Sensitivity of Savings Accounts," Journal of Economics / Ekonomicky casopis, Institute of Economic Research, Slovak Academy of Sciences, vol. 70(4), pages 349-367, April.

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    More about this item

    Keywords

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

    JEL classification:

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

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