Matteo Formenti and Umberto Crespi

Client behaviour deeply impacts a bank’s liquidity, funding, interest rate position and, consequently, the management of its asset/liability mismatch and related profitability. Since the 2008 global financial crisis, an increasing interest from external stakeholders (regulators, shareholders, institutional investors) in understanding how client behaviour impacts banks’ profitability has been observed, as well as how banks manage their liquidity, funding and interest rate risk in light of it.

The output of behavioural models is also relevant for many of the internal processes and stakeholders of a bank. For example, models are used: in the treasury processes in setting the optimal interest rate hedging strategy in view of a customer’s prepayment option; in the planning processes to assess the contribution of maturity transformation on a bank’s net interest margin; in the internal interest transfer system to identify the value-creating and destroying businesses (eg, shorter duration of loans due to prepayment implies a lower cost of funding that is allocated to that business); in the marketing strategy to define the clients that are more important in providing a stable funding

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