Risk Modeling

Model Validation

Evaluation and validation of the design and implementation of balance sheet management and risk models. Our team provides assurance that risk management systems and processes will align with industry best practices and regulatory requirements.

Review and Assess

  • All mission-critical models used for balance sheet and risk management
  • Organizational structure for model management
  • Model maintenance policies and procedures
  • Underlying data and key assumptions
  • Risk reports

Solution Strategies

  • Develop a comprehensive corporate model validation policy
  • Improve data gathering and data management processes
  • Implement and audit formal change-control process
  • Implement self-validation system

DFAST Model Development

Angel Oak has developed a comprehensive analytical system for assessing core deposit behaviors at financial institutions of all sizes and complexity. Our model processes analytics that are easily incorporated into treasury and risk management.

Core Deposit Modeling

Angel Oak has developed a comprehensive analytical system for assessing core deposit behaviors at financial institutions of all sizes and complexity. Our model processes analytics that are easily incorporated into treasury and risk management processes.

The model identifies key drivers of duration and market value and produces results that are technically rigorous, action-oriented and back-testable. A risk management focus drives our approach. The model facilitates overall risk awareness and sensitivity analysis to key assumptions.

Competitive advantages

  • The model results can be input directly into existing ALM and FTP systems
  • The analysis can be used by ALM, treasury and funding managers – our approach facilitates consistency in treatment across the entire organization.
  • We provide web-enabled access to proprietary historical data to facilitate both institution-specific and peer analysis under s variety of scenarios.
  • Our professionals have combined decades of applied experience in deposit analysis, allowing us to conduct knowledge transfer while serving as a trusted advisor.

NMD Analytics Model

NMD Analytics is a participative, subscription-based service used by financial institutions to develop key assumptions around the behavior of checking, savings and money market demand accounts (collectively known as non-maturity deposits, or NMD.)

Predicting NMD behavior is never an easy task and it is especially challenging given current market conditions. Industry estimates (FIDICA 305, OTS Decay Tables, other Index-type services) are either outdated, no longer generated, or the underlying data is limited to past studies performed at single points in time. Performing an analysis of institution-specific NMD behavior remains the gold standard, but they require resources and expertise that make them cost-prohibitive for many institutions.

NMD Analytics – a Better Approach

While it may not be possible to predict with certainty future NMD account balances, how long they will remain, or what future rates might be paid to retain NMD accounts, financial institutions still need to consider the importance of NMD assumptions in managing interest rate risk (IRR) exposure:

  • Industry wide, NMD’s currently represent more than 48% of balance sheet funding
  • Assumptions regarding NMD’s can account for a large portion of IRR measurement error
  • The accuracy of these assumptions may well drive the accuracy of institution-wide IRR measures
  • Assumptions can alter a bank’s position from asset-sensitive to liability-sensitive

NMD Analytics is a web-enabled platform, powered by Angel Oak’s Core Deposit Model. Subscribers upload monthly account level data via a secure internet application. No customer identifying information is collected. Angel Oak works with each subscriber to create the upload file and, once established, data uploads take just minutes to complete. At the end of each calendar quarter, analytics are performed on the collected data and subscribers are alerted to download reports and tables for ALCO review and IRR model input.

Data is mapped to NMD categories and reported on an industry-composite basis. For bank/thrifts the categories include personal and commercial checking, interest checking and savings account along with money market accounts. Credit union categories include share drafts, interest-bearing share drafts, regular shares, money market accounts.

Years of practical ALM/IRR management and examiner experience is behind the development of NMD Analytics. The construct allows for the continuous collection and analysis of participant data, resulting in IRR model inputs that are, to the greatest extent possible, representative of contemporary NMD behavior. The result is an industry-leading service that provides:

  • Continuous data feeds and model maintenance to ensure reported estimates are reflective of NMD behavior observations
  • Decay (run-off) tables designed for easy ALM/IRR model input
  • Rate sensitivity measures based on market indices
  • Executive summary and supporting documentation of methodology and approach
  • More precision in IRR stress testing
  • Stronger compliance with recent IRR regulatory guidance

A Path Forward for Institutional Data

Infographic: A Path Forward for Institutional Data

Institution-Specific Results

NMD Analytics offers a path forward to begin data collection and provide meaningful estimates using industry data to augment current results. Angel Oak continues to collect data over time and include the results in the ongoing composite analysis. A gradual migration of industry to bank specific data occurs, offering greater confidence and reliability of NMD assumptions used in your model.

For subscribers that currently have sufficient historical data, a premium service level allows for a separate model run using institution-specific data. The results can be presented at the category levels listed above, or expanded to the exact categories the subscriber uses for IRR management purposes. Future capabilities will expand the NMD Analytics service to provide geographic, peer and product analyses tools.

Subscribing to Angel Oak’s NMD Analytics Service

NMD Analytics is accessed via a secure website. The service is available as an annual subscription that provides participating subscribers with four quarterly reports.

To learn more about Angel Oak NMD Analytics or other services provided by Angel Oak Advisory, please contact us at info@angeloakconsulting.com, or by calling 404.844.5731.

Liquidity & Funding Mix Optimization

Actionable liquidity risk management processes, including sources and uses of cash flow models, maximum cash outflow (MCO) projections, operating procedures and management reporting. Our institution- and market-specific strategies incorporate best practices and reflect current and proposed regulatory requirements.

Review and Assess

  • Organizational structure for liquidity risk management
  • Cash flows associated with assets, liabilities and off-balance sheet positions
  • Underlying data and key assumptions for liquidity/sources and uses of funds model
  • Liquidity risk and funding reports
  • Liquidity management policies and contingency funding plans

Solution Strategies

  • Develop comprehensive liquidity management and contingency policies
  • Develop risk reporting and senior management communications plan
  • Construct and implement bank-owned liquidity model and reporting software
  • Initiate ALCO, corporate treasury and line of business workshops

Recent Insights

Model Risk Management Framework and Related Regulatory Guidance

Download whitepaper