7.4 Cash Flow Assignment Methodologies

The complete list of cash flow assignment methods are as follows:

• Selected time bucket only
• Equally to all time buckets up to and including the selected bucket
• In decreasing order to all time buckets up to and including the selected bucket
• In increasing order to all time buckets up to and including the selected bucket
• In proportion to the bucket size

Detailed in the following sections are illustrations for each cash flow assignment method. The standard Level 0 time buckets are Overnight, 1-7 Days, 8-15 Days, 16-30 Days, 1-3 Months, 3-6 Months, 6-12 Months, 1-5 years, and > 5 Years. All examples consider an EOP balance of 500000 for time deposits.

1. Selected Time Bucket

   In this case, the assumption unit is applied to the cash flows and the assumption cash flows are mapped to the time bucket selected. If the assumption is not specified on Level 0 buckets, then the assignment to the lower buckets is done proportionately to the bucket size.

2. Equal Assignment

   Here, cash flows assigned to each bucket are up to the selected bucket. Assignments are made equally to the selected level and further assignment is done till the most granular level. The formulae under different conditions are as follows:

   1. EOP Balance Based Assumptions, Assumption Unit = Percentage

      Image81 This illustration shows the calculation for EOP Balance Based Assumptions,

      Figure 7-20 Calculation for EOP Balance Based Assumptions

      
      

      

      
      

      Where,

      Level X Buckets: Higher granular buckets

      Table 7-49 Equal Assignment under Balance Based Assumptions, %

      Business Assumption			Cash Flow Assignment
      Product	From Bucket	Run-off	Contractual Cash Flow	Time Bucket	Business AssumptionsRevised Cash Flow
      Time Deposits	8-15 Days	5%	10000	Overnight	– 2500 [= 10000 – {(500000*5%)/2}]
      			5000	1-7 Days	– 7500 [= 5000 – {(500000*5%)/2}]

   2. Cash Flow Based Assumptions, Assumption Unit = Percentage

      image82 This illustration shows the formula for Cash Flow based Assumptions.

      Figure 7-21 Formula for Cash Flow based Assumptions

      
      

      

      
      

      Where, n: Selected bucket

      Table 7-50 Equal Assignment under Cash Flow Based Assumptions, %

      Business Assumption			Cash Flow Assignment
      Product	Time Bucket	Run-off	Contractual Cash Flow	Time Bucket	Revised Cash Flow
      Time Deposits	8-15 Days	5%	10000	Overnight	9800 [= 10000 – {(8000*5%)/2}]
      			5000	1-7 Days	4800 [= 5000 – {(8000*5%)/2}]

   3. Assumption Unit = Value

      Figure 7-22 Formula for Assumption unit.

      
      

      

      
      

      Table 7-51 Equal Assignment, Value

      Business Assumption			Cash Flow Assignment
      Product	Time Bucket	Run-off	Contractual Cash Flow	Time Bucket	Revised Cash Flow
      Time Deposits	8-15 Days	3000	10000	Overnight	8500
      			5000	1-7 Days	3500 [= 5000 – (3000/2)]

3. Proportionate Assignment

   Cash flows are assigned to each bucket up to the selected bucket in proportion to the bucket size. Assignments are made proportionately to the selected level and further assignment is done till the most granular level. The formulae under different conditions are as follows:

   1. EOP Balance Based Assumptions, Assumption Unit = Percentage

      Figure 7-23 Formula for EOP Balance Based Assumptions.

      
      

      

      
      

      Where,

      t: Number of days in the given Level X bucket

      Table 7-52 Proportionate Assignment under Balance Based Assumptions, %

      T: Total number of days up to the selected bucket			Cash Flow Assignment
      Product	Time Bucket	Run-off	Contractual Cash Flow	Time Bucket	Revised Cash Flow
      Time	8-15 Days	5%	10000	Overnight	10000
      Deposits					[= 10000 –
      					{(500000*5%)*0/7]
      			5000	1-7 Days	– 20000
      					[= 5000 –
      					{(500000*5%)*7/7]

   2. Cash Flow Based Assumptions, Assumption Unit = Percentage

      Figure 7-24 Formula for Cash Flow Based Assumptions.

      
      

      

      
      

      Table 7-53 Proportionate Assignment under Cash Flow Based Assumptions, %

      Business Assumption			Cash Flow Assignment
      Product	Time Bucket	Run-off	Contractual Cash Flow	Time Bucket	Revised Cash Flow
      Time Deposits	8-15 Days	5%	10000	Overnight	10000 [= 10000 – {(8000*5%)*0/7}]
      			5000	1-7 Days	4600 [= 5000 – {(8000*5%)*7/7}]

      Table 7-54 Proportionate Assignment, Value

      Business Assumption			Cash Flow Assignment
      Product	Time Bucket	Run-off	Contractual Cash Flow	Time Bucket	Revised Cash Flow
      Time Deposits	8-15 Days	3000	10000	Overnight	10000
      					[= 10000 –
      					(3000*0/7)]
      			5000	1-7 Days	2000
      					[= 5000 –
      					(3000*7/7)]

4. Decreasing Assignment

   Cash flows are assigned to each bucket up to the selected bucket in decreasing order based on ranks assigned to cash flows. Assignments are made in decreasing order to the selected level and further assignment is done till the most granular level. The formulae under different conditions are as follows:

   1. EOP Balance Based Assumptions, Assumption Unit = Percentage

      Figure 7-25 Formula for EOP Balance Based Assumptions.

      
      

      

      
      

      Where,

      Bucket Rank: This is the rank assigned to each Level X bucket within the bucket set. The rank is assigned in decreasing order that is, 1 is assigned to the last bucket in the set, 2 is assigned to the previous bucket, and so on.

      Table 7-55 Decreasing Assignment under Balance Based Assumptions, %

      Business Assumption			Cash Flow Assignment
      Product	Time Bucket	Run-off	Contractual Cash Flow	Time Bucket	Bucket Rank	Revised Cash Flow
      Time Deposits	1-3 Months	5%	10000	Overnight	4	0 [= 10000 – (500000*5%)*4/10]
      			5000	1-7 Days	3	– 2500 [= 5000 – (500000*5%)*3/10]
      			8000	8-15 Days	2	3000 [= 8000 – (500000*5%)*2/10]
      			3000	16-30 Days	1	500 [= 3000 – (500000*5%)*1/10]

   2. Cash Flow Based Assumptions, Assumption Unit = Percentage

      Figure 7-26 Formula for Cash Flow Based Assumptions.

      
      

      

      
      

      Table 7-56 Decreasing Assignment under Cash Flow Based Assumptions, %

      Business Assumption			Cash Flow Assignment
      Product	Time Bucket	Run-off	Contractual Cash Flow	Time Bucket	Bucket Rank	Revised Cash Flow
      Time Deposits	1-3 Months	5%	10000	Overnight	4	9880 [= 10000 – (6000*5%)*4/10]
      			5000	1-7 Days	3	4910 [= 5000 – (6000*5%)*3/10]
      			8000	8-15 Days	2	7940 [= 8000 – (6000*5%)*2/10]
      			3000	16-30 Days	1	2970 [= 3000 – (6000*5%)*1/10]

   3. Assumption Unit = Value

      Figure 7-27 Decreasing Assignment, Value

      
      

      

      
      

      Table 7-57 Decreasing Assignment, Value

      Business Assumption			Cash Flow Assignment
      Product	Time Bucket	Run-off	Contractual Cash Flow	Time Bucket	Bucket Rank	Revised Cash Flow
      Time Deposits	1-3 Months	5%	10000	Overnight	4	8800 [= 10000 – (3000*4/10)]
      			5000	1-7 Days	3	4100 [= 5000 – (3000*3/10)]
      			8000	8-15 Days	2	7400 [= 8000 – (3000*2/10)]
      			3000	16-30 Days	1	2700 [= 3000 – (3000*1/10)]

5. Increasing Assignment

   Cash flows are assigned to each bucket up to the selected bucket in increasing order based on ranks assigned to cash flows. Assignments are made in increasing order to the selected level and further assignment is done to the most granular level. The formulae under different conditions are as follows:

   1. EOP Balance Based Assumptions, Assumption Unit = Percentage

      Figure 7-28 Formula for EOP Balance Based Assumptions.

      
      

      

      
      

      Where,

      Bucket Rank: Rank assigned to each Level 0 bucket within the bucket set. The rank is assigned in increasing order i.e. 1 is assigned to the first bucket in the set, 2 is assigned to the next bucket, and so on.

      Table 7-58 Increasing Assignment under Balance Based Assumptions, %

      Business Assumption			Cash Flow Assignment
      Product	Time Bucket	Run-off	Contractual Cash Flow	Time Bucket	Bucket Rank	Revised Cash Flow
      Time Deposits	8-15 Days	5%	10000	Overnight	1	1666.67 [= 10000 – (500000*5%)*1/3]
      			5000	1-7 Days	2	– 11666.67 [= 5000 – (500000*5%)*2/3]

   2. Cash Flow Based Assumptions, Assumption Unit = Percentage

      Figure 7-29 Formula for calculation of cash flows.

      
      

      

      
      

      Table 7-59 Increasing Assignment under Cash Flow Based Assumptions, %

      Business Assumption			Cash Flow Assignment
      Product	Time Bucket	Run-off	Contractual Cash Flow	Time Bucket	Bucket Rank	Revised Cash Flow
      Time	8-15 Days	5%	10000	Overnight	1	9866.67
      Deposits						[= 10000 –
      						(8000*5%)*1/3]
      			5000	1-7 Days	2	4733.33
      						[= 5000 –
      						(8000*5%)*2/3]

   3. Assumption Unit = Value

      Figure 7-30 Formula for calculation of cash flows.

      
      

      

      
      

      Table 7-60 Increasing Assignment, Value

      Business Assumption			Cash Flow Assignment
      Product	Time Bucket	Run-off	Contractual Cash Flow	Time Bucket	Bucket Rank	Revised Cash Flow
      Time Deposits	8-15 Days	3000	10000	Overnight	1	9000
      			5000	1-7 Days	2	(3000*2/3)]

      Note:

      If assumptions are specified on bucket levels other than Level 0, the assignment is done at the selected level and further assignment is done at the higher granular levels, using the same cash flow assignment methodology selected, till assignment has been made to Level 0 buckets. The only exception is the selected time bucket method, where the cash flow is assigned proportionately to higher granular bucket levels based on the bucket size. Previously, the assignment to more granular levels was done equally.

      An illustration of assignment across multiple levels is provided in the following table. Suppose $1000 is assigned in increasing order to buckets at multiple levels. The assignment is done as follows:

      Table 7-61 Cash Flow Assignment to Multiple Bucket Levels

      Level 2 Bucket	Rank	Amount Assigned	Level 1 Bucket	Rank	Amount Assigned	Level 0 Bucket	Rank	Amount Assigned
      1 – 3 Week	1	333.33 [= (1000*1/3)]	1 Week	1	111.11 [= (333.33*1/3)]	1 Week	1	111.11 [= (111.11*1/1)]
      			2 – 3 Week	2	222.22 [= (333.33*2/3)]	2 Week	1	74.07 [= (222.22*1/3)]
      						3 Week	2	148.15 [= (222.22*2/3)]
      4 – 8 Week	2	666.67 [= (1000*2/3)]	4 – 5 Week	1	222.22 [= (666.67*1/3)]	4 Week	1	74.07 [= (222.22*1/3)]
      						5 Week	2	148.15 [= (222.22*2/3)]
      			6 – 8 Week	2	444.44 [= (666.67*1/3)]	6 Week	1	74.07 [= (444.44*1/6)]
      						7 Week	2	148.15 [= (444.44*2/6)]
      						8 Week	3	222.22 [= (444.44*3/6)]

6. New Business

   End of Period (EOP) Asset Balance of Growth assumption allows you to select the method for cash flow assignment. Various options for cash flow assignment available are as follows:

   • Decreasing: In decreasing order to all time buckets up to and including the selected time bucket.
   • Equal: Equally to all time buckets up to and including the selected time bucket.
   • Proportional: In proportion to the time bucket size.
   • Selected: Selected time bucket only.

   Decreasing Cash Flow assignment is done using the following formula:

   Figure 7-31 Formula for calculation of cash flows.

   
   

   

   
   

   Equal cash Flow assignment is done using the following formula:

   Figure 7-32 Formula for calculation of cash flows.

   
   

   

   
   

   Proportional Cash Flow assignment is done using the following formula:

   Figure 7-33 Formula for calculation of cash flows.

   
   

   

   
   

   Selected Cash Flow assignment is done using the following formula:

   Figure 7-34 Formula for calculation of cash flows.

   
   

   

   
   

   EOP Liability Balance Growth assumption allows you to select the method for cash flow assignment. Available options for cash flow assignment are as follows:

   • Decreasing: In decreasing order to all time buckets up to and including the selected time bucket.
   • Equal: Equally to all time buckets up to and including the selected time bucket.
   • Proportional: In proportion to the time bucket size.
   • Selected: Selected time bucket only.

   Decreasing Cash Flow assignment is done using the following formula:

   Figure 7-35 Formula for calculation of cash flows.

   
   

   

   
   

   Equal Cash Flow assignment is done using the following formula:

   Figure 7-36 Formula for calculation of cash flows.

   
   

   

   
   

   Proportional Cash Flow assignment is done using the following formula:

   Figure 7-37 Formula for calculation of cash flows.

   
   

   

   
   

   Selected Cash Flow assignment is done using the following formula:

   Figure 7-38 Formula for calculation of cash flows.

   
   

   

   
   
7. Drawdown

   Funding Line of Credit allows you to select the method for cash flow assignment. This business assumption also allows you to select the method for the cash flow assignment. Available options for cash flow assignment are as follows:

   • Decreasing: In decreasing order to all time buckets up to and including the selected timebucket.
   • Equal: Equally to all time buckets up to and including the selected time bucket.
   • Proportional: In proportion to the time bucket size.
   • Selected: Selected time bucket only.

   Decreasing Cash Flow assignment is done using the following formula:

   Figure 7-39 Formula for calculation of cash flows.

   
   

   

   
   

   Equal Cash Flow assignment is done using the following formula:

   Figure 7-40 Formula for calculation of cash flows

   
   

   

   
   

   Proportional Cash Flow assignment is done using the following formula:

   Figure 7-41 Formula for calculation of cash flows.

   
   

   

   
   

   Selected Cash Flow assignment is done using the following formula:

   Figure 7-42 Formula for calculation of cash flows.

   
   

   

   
   

   Credit Line Drawdown allows you to select the method for the cash flow assignment. This assumption also allows you to specify the corresponding cash outflow for the specified cash inflow.

   Available options for cash flows assignment for this assumption are as follows:

• Decreasing: In decreasing order to all time buckets up to and including the selected timebucket.
• Equal: Equally to all time buckets up to and including the selected time bucket
• Proportional: In proportion to the time bucket size
• Selected: Selected time bucket only.

  Decreasing Cash Flow assignment is done using the following formula:

  Figure 7-43 Formula for calculation of cash flows.

  
  

  

  
  

  Equal Cash Flow assignment is done using the following formula:

  Figure 7-44 Formula for calculation of cash flows.

  
  

  

  
  

  Proportional Cash Flow assignment is done using the following formula:

  Figure 7-45 Formula for calculation of cash flows.

  
  

  

  
  

  Selected Cash Flow assignment is done using the following formula:

  Figure 7-46 Formula for calculation of cash flows.