Prague Economic Papers 2016, 25(5):617-633 | DOI: 10.18267/j.pep.578

Why Are Savings Accounts Perceived as Risky Bank Products?

Hana Dľmuráňová1, Petr Teplý2
1 Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Prague, Czech Republic (hanadzmuranova@gmail.com).
2 Department of Banking and Insurance, Faculty of Finance and Accounting, University of Economics in Prague, Prague, Czech Republic (petr.teply@vse.cz).

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.

Keywords: simulations, savings accounts, risk management, replicating portfolio, interest rate risk, demand deposits, bank
JEL classification: C15, G11, G21

Published: January 1, 2016  Show citation

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Dľmuráňová, H., & Teplý, P. (2016). Why Are Savings Accounts Perceived as Risky Bank Products? Prague Economic Papers, 25(5), 617-633. doi: 10.18267/j.pep.578
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