A Benchmark Framework for Non Maturing Deposits: An Application to Public Data Available from Banca d'Italia

Abstract

This paper presents an application of stochastic risk factor approach to model the non-maturing deposits and it sketches a benchmark framework to assess the related expected profitability and the liquidity and duration risks of a bank compared with the rest of the economic system it works within. More specifically, we calibrate the model to system data for sight deposits of the Italian banking industry, available from the public statistical data base of Banca d'Italia, spanning over a long period of time that includes the Euro Crisis. The approach is applied to both retail and corporate customers, and it considers their different behaviour based on the size of their deposit. It allows for i) an integrated modelling of the market interest rates, creditworthiness of the bank and evolution of the deposits' volume; ii) stochastic risk factors driving deposits' rates and volume; iii) unified and consistent measurement of the interest rate risk and the liquidity; iv) negative interest rates, both at inception and in the future; v) the evaluation of optionalities such as the zero floor on the deposits rates; vi) stress testing for ALM purposes.