Charles Explorer logo
🇬🇧

Why are savings accounts perceived as risky bank products?

Publication at Central Library of Charles University, Faculty of Social Sciences |
2016

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.