Financial Services Industry Applications

The financial services industry environment is a collection of rules that support the valuation of the financial services industry balance sheet and off-balance sheet items; they measure the sensitivity of those values under alternative economic and operating assumptions. Many of these rules define financial application behavior and their attributes; for example, term to maturity, accrual basis, compounding frequencies, and so on. Other rules define interest rate environments, customer behavioral models, service fee models, and so on.

Here are the rules and processes that create the financial services industry environment:

• Financial calculation rules.

  Establishes how the PeopleSoft Financial Services Industry applications calculate specific financial measures or application results for each instrument pool. This may include processing rules for stratification, behavioral models, application pricing, forecasting, funds transfer pricing, and risk-weighted capital. This is the core functionality of the PeopleSoft Financial Services Industry system.

• Product definitions.

  Specifies many of the cash flow characteristics of financial instruments. Some attributes include type of balance, term, interest calculations, payment frequency, and dates. PeopleSoft Financial Services Industry applications use product definitions for processing.

• Service fees modeling.

  Models noninterest revenues and expenses in earnings simulations.

• Behavioral modeling.

  Models the interest rate sensitivity of customers with respect to loan prepayment, loan charge-off, deposit growth and runoff, and rate lock options.

• Cash flow modeling.

  Models cash flows for an instrument or application. You can graph and view the results online, as well as write the results to the database. You can interactively explore assumptions affecting cash flows, such as the rate environment, terms, and payment characteristics of the instrument, and the effects of the behavioral model.

• Pricing indices definition.

  Defines indices underlying the market-based interest rates that are representative of bank management's pricing strategy for loans and deposits. Pricing indices are one of the core-supporting components of PeopleSoft Financial Services Industry applications. Indices are used for multiple purposes, such as repricing and behavioral modeling. There are two parts to using pricing indices in PeopleSoft Financial Services Industry: pricing and repricing instruments and products, and providing benchmark rates to the behavioral models.

• Product ratings definition.

  Creates customized product attributes to calculate risk capital or expected losses at a product-specific level.

• Negative amortization.

  Calculates settings that go into effect for certain products when the payment does not cover the interest on the loan and the amount of the loan (principle) is increasing over time.

• Seasonality groups.

  Define cyclical patterns that may be factored into the interest rate behavior models or application forecasts.

• Model definitions.

  Define various runtime parameters on a model-ID level. Such parameters are product, balance sheet, and income statement trees. By using different trees, you can run applications on different sets of data. Other parameters that are set on the model ID level are cash flow settings, error log settings, and engine-specific settings for PeopleSoft Funds Transfer Pricing and PeopleSoft Risk-Weighted Capital.

• Yield curve generation.

  Creates curves based on generic or market data, using rules for defining source data, and flexible interpolations for determining rates between data points. Curves may be built exclusively from market data (that is, Treasury, LIBOR, and so on) or may be the result of a mathematical operation. An evaluator component provides discount factors, spot rates, and forward rates.

• Stratification.

  Aggregates the volume of financial instruments (individual instances of an application) to a manageable scale for processing purposes.

• Balance sheet and income statement rules.

  Specify the application tree nodes and account nodes for the balances that PeopleSoft Financial Services Industry applications process. These rules define how to reconcile the instrument balances and position balances to the ledger account balances.

• Reconciliation rules.

  Enable you to reconcile a variety of instrument balances to the ledger.