Definition
Run-off describes how the positions on the balance sheet at a reporting date unwind in the future: principal repayments, maturities and deposit withdrawals. Projected contract by contract and aggregated by maturity bucket, it produces the cash flows that feed repricing and liquidity gaps, EVE, NII, LCR and NSFR projections and the funds transfer pricing calculation.
Method
- Contractual run-off: each contract follows its schedule (bullet, annuity, linear, deferred), repricing dates and contractual options.
- Behavioural run-off: models adjust the schedule to reflect actual client behaviour, such as prepayments or the stability of non-maturity deposits.
- Balance sheet assumption: static (no renewal), constant (like-for-like replacement) or dynamic (new business according to the business plan).
- Scenarios: each run-off can be recomputed under rate or liquidity stress.
Regulatory requirement
Run-off is not a regulatory metric in itself, but it drives most of them. The EBA IRRBB guidelines require behavioural assumptions to be documented, justified and tested. The additional liquidity monitoring metrics (ALMM) require a contractual maturity ladder, and the ILAAP relies on stressed run-offs.
Practical challenges
- Volume: millions of contracts projected over long horizons, under several scenarios.
- Consistency: the same run-off must serve interest rate risk, liquidity and margin, or the figures will not reconcile.
- Traceability: every cash flow must be traceable to the assumptions that produced it.
In RIALTO
This concept is covered by the Flow Insight Core module. The use case 'Explaining a change between two reporting dates' shows it in practice.