Information Needed for Cash Flow Models
Wed Nov 07, 2012We recently visited a banker with whom we have had several conversations, and the discussion finally turned to a concrete back-and-forth over what was necessary to implement a trial with them. This is a conversation that we have had several other times, but we decided that we would provide a list of the instruments supported and data requirements that could be forwarded to his bank's IT staff.
Moreover, since this is a point that does get raised periodically, providing this information to all of our users and prospective users seems like a wise option.
- Fixed-Rate & Floating-Rate Bonds, and Mortgage Backed Securities - At a minimum, we need to know the type of instrument, the face value, origination date, duration (or maturity), and the rate information for the bond(s), including any unusual coupons, the index against which the bond is issued, and/or the offset from a given index. If there are any unusual items associated with the instrument -- such as the calendar against which the bond is issued, the redemption amount, the settlement period, purchase discount, or payment convention -- we need to know that information as well. We can use an identifier and bookkeeping tags of your bank's choice, particularly if we discuss any unique ways that your bank aggregates holdings or profits (e.g., municipal bonds, agency instruments, etc.). Finally, if your bank applies transfer pricing to bonds, we can also accommodate accounting for the internal spread (versus the overall spread).
- Vanilla Swaps - Capitalytics supports simple swaps, and we would be glad to understand if your bank requires modeling other, more exotic, instruments. For swaps, we simply need to know the instruments on both the "pay side" and the "receive side", particularly their rate terms.
- Fixed-Rate & Floating-Rate Closed End Loans - For these instruments, we need to know the type of instrument, the product (in terms of what your bank is providing, e.g., a first mortgage, or other type of collateralized or secured loan), the total loan amount, the origination date, the expected maturity date, and the rate information for the loan, including "teaser rates", the index on which a variable-rate loan may be issued, and/or the offset from a given index. We will also need to know the payment schedule (payment due dates), and if there are any unusual provisions that should be accounted for if the borrower's payment is late. We support funds transfer pricing, so we can track the spread and profitability assigned to a field office or business unit at your bank. Again, we can use an identifier and bookkeeping tags of your bank's choice, particularly if we discuss any unique ways that your bank aggregates holdings or profits (e.g., zip code, risk rating, collateral rating, call report categorization, borrower's NAICS or SIC code, etc.).
- Fixed-Rate & Floating-Rate Open End Loans - For these accounts, we again need to understand what type of product you are providing, such as a HELOC or a revolving line of credit. The information that we would require is very similar to the "Closed End" loans mentioned above, but, instead of our being able to determine the minimum required payment based on the maturation of the note, we would need to know your borrower's credit limit for each account and your bank's minimum requirement payment terms, so that we can correctly and accurately model the instrument.
- Balloon Loans, Hybrid ARMs, and other Non-Standard Loans - In spite of their unusual nature, these instruments' requirements (in addition to the points mentioned above) are fairly straightforward. For balloon loans, we need to know the amortization schedule for life of the loan, and when the balloon payment will become due. For Hybrid ARMs, we need to understand the fixed- and floating-rate schedules, and the terms associated with each. And we can accommodate other types of "non-standard" loans; just contact us to discuss your portfolio.
- CDs and Demand Deposit Accounts (incl. MMAs, Checking & Savings Accounts, etc.) - Deposit accounts are also straightforward in their requirements. For CDs, we need to know the date on which the account was opened, the maturity date, and the rate information for the account. For demand deposit accounts, we simply need to know the interest accrual terms at a minimum. If you would prefer, we can use our demand deposit analyzer (discussed here) to determine the trends associated with your account holders' saving/spending patterns, and provide the best understanding of the liquidity that you bank may be able to expect in the future. We also need to know any terms and fees for your products available (e.g., overdraft fees), and other key factors provided.