Work detail

Risk management of savings accounts

Author: Mgr. Hana Džmuráňová
Year: 2013 - summer
Leaders: prof. PhDr. Petr Teplý Ph.D.
Work type: Finance, Financial Markets and Banking
Language: English
Pages: 100
Awards and prizes:
Abstract: This thesis deals with the risk management of savings accounts. Savings accounts are nonmaturing
liabilities bearing two embedded options. The first option is the client’s right to
withdraw deposits on notice. The second option is a bank’s right to change the deposit rate
on savings accounts whenever it wishes. This in practice means that a fierce competition
may arise as banks can quickly react to competitor’s change in the deposit rate. The
embedded characteristics make the risk management of savings accounts challenging. We
identify five key risks of savings accounts: liquidity risk, market risk (interest rate risk),
systemic risk, reputational risk, and model risk. The thesis focuses on the interest rate risk
and the method of replicating portfolios, which is a standard technique of the estimation of
non-maturing liabilities’ interest rate risk employed by banks. Using replicating portfolio
approach, we derive that savings accounts are risky liabilities. We provide evidence that
high deposit rates offered on numerous savings accounts in the Czech Republic have not
been consistent with low market rates since January 2012, at least. We show that
unsustainable deposit rates combined with competition among banks will lead to capital
losses in some banks when market rates increase.




Patria Finance
Česká Spořitelna