Publication detail

Why Are Savings Accounts Perceived as Risky Bank Products?

Author(s): Mgr. Hana Džmuráňová ,
prof. PhDr. Petr Teplý Ph.D.,
Type: Articles in journals with impact factor
Year: 2016
Number: 0
ISSN / ISBN: ISSN 1210-0455 (print), ISSN 2336-730X (online)
Published in: Prague Economic Papers, Czech Republic
Publishing place: Prague, Czech Republic
Keywords: bank, demand deposits, interest rate risk, replicating portfolio, risk management, savings accounts, simulations
JEL codes: C150, G21, G11
Suggested Citation: Džmuráňová, H., Teplý, P. (2016), “Why Are Savings Accounts Perceived as Risky Bank Products?“. Prague Economic Papers, Vol. 25, No. 5, pp. 617-633. DOI: 10.18267/j.pep.578
Grants: GAUK 165215: Risk management of demand deposits VŠE IP100040
Abstract: Risk management for banking products can be challenging in general, but is even more risky during 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.
Downloadable: PDF

Partners

Deloitte

Sponsors

CRIF
McKinsey
Patria Finance