• Behavioural Modelling for liquidity, funding and interest rate risks

    Behavioural modelling plays a vital role in enhancing the accuracy and reliability of a bank’s liquidity, funding and interest rate risk management. While many cash flows and exposures have contractually defined maturities, real-world customer behaviour often diverges, introducing risk if not properly understood, modelled, and managed.

    At Katalysys, we help banks build and implement robust behavioural models that reflect how customers actually behave - under both business-as-usual and stress conditions. Our approach provides greater insight into funding gaps, liquidity mismatches, the stability of non-maturing liabilities, and interest rate risk gaps, helping you strengthen regulatory submissions, internal planning, and day-to-day treasury decisions.

Key activities

Banks are expected to take a realistic, data-driven approach to modelling cash flows - especially for products with uncertain timing, such as current accounts, savings products, committed but undrawn credit lines, and early loan prepayments. Inaccurate assumptions can lead to overstated liquidity buffers or underappreciated funding risks.

Behaviouralisation plays a critical role across several risk domains:

  • In liquidity and funding risk, banks must assess the stability of non-maturing deposits, the timing of drawdowns on credit lines, and the likelihood of early loan repayments, all of which directly affect cash flow projections and funding gap analysis.

  • In interest rate risk management, especially Interest Rate Risk on the Banking Book (IRRBB), banks must model how interest-sensitive items such as non-maturing deposits (NMDs) and prepayable loans behave under different rate environments. The Prudential Regulation Authority (PRA) requires firms to evidence the assumptions used in their Economic Value of Equity (EvE) and Net Interest Income (NII) calculations, particularly for behavioural balances.

We help you bridge the gap between contractual structures and behavioural reality, delivering models that are data-driven, business-relevant, aligned to regulatory rules and industry best practices - via the following activities:

  • We begin by working with your risk, finance, and treasury teams to define the behavioural modelling scope. This typically includes:

    • Non-maturing deposits (e.g., current and savings accounts)

    • Early loan prepayments and refinancing

    • Undrawn credit facilities and drawdown profiles

    • Reinvestment and rollover behaviour

    • Embedded optionalities affecting interest rate sensitivity

    • Customer switching behaviour under interest rate shocks

  • We analyse internal data, transactional and balance history, repricing patterns, drawdown utilisation, to extract behavioural patterns across product types and customer segments. Where data is limited, we use proxies and peer benchmarks to ensure conservative yet credible assumptions.

  • We build behavioural models tailored to your institution, using historical trends, regression analysis, survival curves, or scenario-based overlays. We calibrate assumptions to reflect both business-as-usual and stress environments, ensuring compatibility with PRA expectations and, IRRBB and ILAAP requirements.

  • We integrate behavioural outputs into key processes:

    • IRRBB measurement (e.g., EVE under interest rate shocks)

    • Liquidity cash flow forecasting (e.g., PRA110 templates)

    • Stress testing scenarios for ICAAP/ILAAP

    • Recovery and resolution planning

  • We provide clear documentation of the modelling methodology, data inputs, assumptions, limitations, and governance processes. We help prepare internal policy updates and management/board papers for model sign-off.

What we offer

  • Full behavioural modelling suite

    Full behavioural modelling suite

    We offer a full-service behavioural modelling solution, from data analysis and model development to governance, documentation, and integration into regulatory processes - aligned with PRA110, ILAAP, ICAAP, IRRBB, and stress testing requirements..

  • Tailored model development

    Tailored model development

    We design and calibrate behavioural models based on your bank’s data and business model. Our models are transparent, easy to maintain, and aligned with regulatory expectations.

  • Independent model review and validation

    Independent model review and validation

    We offer objective reviews of your existing behavioural assumptions and methodologies, identifying gaps, testing reasonableness, assessing regulatory alignment, and providing actionable improvements.

Let’s get started

Interested in learning more about how we can support your bank? Whether you have specific requirements or just want to explore our services further, we’re here to help. Please feel free to contact us, and one of our experts will get in touch to discuss your needs and how we can assist

We look forward to working with you!

Why choose us

  • We understand how behavioural assumptions influence both liquidity metrics and interest rate risk profiles. We ensure your models support sound decision-making and supervisory confidence across both dimensions.

  • We stay closely aligned with PRA guidance on behaviouralisation, IRRBB expectations (SS5/19), liquidity & funding risks (SS24/15), model risk management (SS1/23) and model risk management principles for stress testing (SS3/18). We help you meet technical standards without overcomplicating your models.

  • We tailor our models to your operational context, whether you operate with basic systems and manual processes, or a more developed ALM platform. We focus on building usable, scalable frameworks.

  • We provide well-structured documentation that supports internal approval, board engagement, and supervisory review. Our behavioural modelling records are ready for scrutiny.

  • We go beyond model delivery. We help you embed behavioural thinking into ALCO discussions, risk appetite setting, and treasury planning, so your models deliver real strategic value.

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