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Asset and Liability Management (ALM)
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Post the global financial crisis, the role of the Treasury within a bank is more challenging than ever. The regulation that followed the crisis, in particular Basel III, has meant that optimisation of assets and liabilities is vital in mitigating the ‘hit’ on Return on Equity that the regulation represents.
This intensive 4-day asset and liability management workshop looks to explain the fundamental role of the ALM function and moreover via real life case studies and excel based simulations explain how the function looks to optimise balance sheet performance via the more selective deployment of balance sheet resources. In addition it will explore the fluid regulatory landscape in which ALM is functioning and outline what the industry considers as best practice in terms of dealing with the challenges that landscape presents.
Hence by attending the day workshop, delegates will be better equipped to work in or with the ALM function and support the optimisation of the balance sheet they are tasked to achieve.
Learning outcomes:- Describe the role of the ALM function within a bank
- Articulate the causes and consequences of the global financial crisis, the motivation for the regulation that has came in the wake of it and the impact it has had on the ALM function
- Explain the impact of the regulation on bank’s balance sheet in particular the resources of capital and liquidity
- Understand the role of the ALM function in optimising the balance sheet via either capital preservation or margin maximisation achieved by a more selective approach to assets issued and funding raised
- Appreciate what future challenges lie ahead for the ALM function in particular from the potential introduction of Basel IV
- Identify ways in which the wider business can support the ALM function in dealing with these challenges via, for example, communication and alignment of business incentivisation
Who should attend?- Group Treasurers
- Chief Risk Officers
- Accounting and Finance Managers
- Asset Managers
- Liquidity Managers
- Risk Managers and Risk Controllers
- Risk Officers
- Auditors and Bank Regulators
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Day 1
Part 1: Linking Asset and Liability Optimisation to Return on Equity
• Responsibilities and best practice of Asset and Liability Committee [ALCO]
• From I to II to III - Evolution of the Basel Accords
• Introduction to Basel III- Motivation
- Impact
- Role of ALM in mitigating
• Basel III Risk Constraint Ratios
- Defining Total, Tier 1, and CET 1 capital ratios
- Understanding the ‘regulatory stack per Basel. III
- Understanding the risk capital buffers
• Basel III The Leverage Ratio
- Defining the leverage ratio
- Motivations for it’s introduction
- How has it impacted banks?
- Understanding the leverage capital buffers
• Going beyond Pillar I – Overview of the ICAAP
- Role of the ICAAP – what are ‘other risks’
- Stress vs Reverse Stress Scenarios
- Expectations – what does good look like?
- SREP and the TCR
- Linking to contingency planning
• Recap on the Standardised Methodology for Credit Risk
- Credit Conversion Factors
- Adjusting for Collateral
- What changed in ‘Final Reforms to Basel III’ aka Basel IV?
- Intuitive overview of Internal Ratings Based [IRB] Approach
• Linking to capital management in banks
- Need to look through both risk and leverage lens
• Linking to Performance measurement of the balance sheet – other ratios
- RoE/RoTE
- RoRWA
- Gearing – elasticity of returns on capital to margin
Activity: Analyse the impact of Basel III Capital Regime on the RoE generated from a simulated balance sheet, consider the merits of asset lead versus liability lead strategies to mitigate these impacts and discuss best practice of how banks are adapting their strategies to achieve this/what success is dependent upon.
Part 2: Linking Accounting and Prudential Regulation – Overview of IFRS9
• Overview of IFRS 9 – what’s new and why?
• Three stages of impairment- Impact on available capital
- Impact on required capital
- Impact on standardised approach banks vs IRB banks
• So what are banks doing to mitigate the impact?
- Managing NPL portfolios
- Modelling expected credit losses to behavioural life vs contractual life
Activity: Model the impact of IFRS9 impairment on a balance sheet which uses Standardised Approach and compare it when applied on a contractual and behavioural basis
Part 3: Gap Analysis and Behavioural Analysis of the Balance Sheet
• Challenges of Maturity Transformation
• What does the Gap Analysis tell us – 3 R’s- Run off aka liquidity risk
- Rollover aka funding risk
- Repricing aka interest rate risk
• Evolving from Static to Dynamic Gap Analysis – the importance of it
- What to consider in dynamic gap analysis
• Behavioural Analysis
• Common statistical models
• Beware of Bob – beast of the behaviours- Adjusting for external drivers - commercial and macro-economic factors
- Internal Drivers - asset vs liability strategy
- Crucially! - Interest rates
- Emerging concerns - stagflation
Activity: Construct a gap analysis post behavioural analysis of non-maturing liabilities and contingent facilities
Day 2:
Part 1: Non-Traded Market Risk – Managing IRRBB
• What is IRRBB and what are the sources of it
• Comparing IRRBB to CSRBB
• Measuring IRRBB- Economic Value of Equity [EVE} vs Earnings at Risk [EAR]
- PV01 and DV01
• Review of BIS 368 ‘Final’ Standards for IRRBB
- Treatment of cash flows
- Time bucketing of cash flows
- Discounting of cash flows
- Stressing of cash flows
• Best practice in Structural Hedging
- What to hedge
- When to hedge
- How much to hedge
• Governance and review– keeping the structural hedge appropriate
Activity: Calculate maximum fall in EVE resulting from the application of BIS 368 Stress Tests to a balance sheetPart 2: Pillar I Liquidity Adequacy - Liquidity Coverage Ratio (LCR)
• Defining LCR and the regulators ambition for it
• The numerators – what qualifies as ‘HQLA’ and the rules that apply for Level 1, 2a and 2b
• The denominator – outflows for deposits, undrawn commitments and allowed inflows
• Challenges in data segregation/implementation and potential balance sheet/ product optimisation strategies
Activity: Calculate LCR for a simulated balance sheet and discuss strategies/challenges in optimising
Part 3: Pillar I Funding Adequacy - Net Stable Funding Ratio (NSFR)
• Defining NSFR and the regulators ambition for it
• The numerator - what qualifies as and allowances for Available Stable Funding
• The denominator – what qualifies as and charged for Required Stable Funding
• Impact of NSFR on banks costs and strategiesCase Study: Calculate NSFR for a simulated balance sheet and discuss strategies/challenges in optimising
Day 3
Part 1: Going beyond Pillar I – Internal Metrics and the role of the ILAAP• Limitations of LCR & NSFR
• Impact of Cash Flow Mismatch Risk [CFMR]
• Internal Metrics- Loan to Deposit Ratio
- Concentration metrics
- Maximum Cumulative Outflow
• Buffer to Survival Days to Actions to Buffer – determining the Risk Appetite
• Role of the ILAAP
• Stress vs Reverse Stress Scenarios
• Expectations – what does good look like?
• Linking to contingency planning
Case Study: Calculate the survival days for a simulated balance sheet under 2 stress scenarios, discuss outcome versus risk appetite and explore options to managePart 2: Optimising Wholesale Funding
• Constructing the funding maturity ladder
• Determining funding gap appetite
• Funding VaR’s and tolereance levels
• Utilising FX and Cross Currency Swaps for funding efficiency
• Wholesale vs non wholesale funding – getting the mix right
Activity: Construct the optimal funding for a behaviouralised asset portfolio from a range of wholesale funding sources, that is within funding risk appetite limits.Part 3: Optimising Deposits Portfolios
• Best practice in managing non-wholesale portfolios
• Segmenting the portfolio – identifying what to grow, migrate or exit
• How banks are adapting products/strategies to support optimisation
• Tools and communications to achieve optimisation
• Detune and migration strategies – calculating the ‘relasticity’
Activity: The impact of several de-tune/migration strategies applied to a mixed deposits portfolio shall be assessed. How a European bank overcame challenges to successfully deliver these strategies shall be discussed.Day 4:
Part 1: Defining and Deriving the FTP Curve
• Defining FTP
- What is it?
- Why have it?
- Why is it essential in optimizing portfolios?
• Evolution of FTP methodologies
• Deriving the FTP Curve - Market sources and proxies
• Ownership and governance
Activity: Derive a maturity matched FTP curve and discuss best practice for achieving this in an under developed wholesale market environment.Part 2: Operating & Pricing with FTP
• Driving behaviours
- Stock/flow rate blending
- Aligning business incentivisation
- Tools/Products to optimise
• Distributing the cost of unwind
• Pricing- Pricing flow business
- Pricing ‘cushions’/buffers
- Reflecting regulation in FTP e.g. impact of LCR
Activity: A maturity matched FTP curve adjusted for LCR and Capital charges will be derived and then applied to a balance sheet. Best practice for achieving this, based on how FTP methodologies of several banks are evolving to reflect these adjustments will then be discussed.
Part 3: Looking ahead
• What’s next for FTP -Total Funds Transfer Pricing [TFTP]
• Impact of high inflation and high interest rate environment- On balance sheets
- On performance
• Impact of Basel 3.5 (aka Basel IV)/CRR 3
- Focus on consistency
- Impact on RWA’s
- How are banks looking to mitigate
• Wrap up
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Our Tailored Learning Offering
Do you have five or more people interested in attending this course? Do you want to tailor it to meet your company’s exact requirements? If you’d like to do either of these, we can bring this course to your company’s office. You could even save up to 50% on the cost of sending delegates to a public course and dramatically increase your ROI.
If you want to run this course at a location convenient to you or if you want a completely customised learning solution, we can help.
We produce learning solutions that are completely unique to your business. We’ll guide you through the whole process, from the initial consultancy to evaluating the success of the full learning experience. Our learning specialists ensure you get the maximum return on your training investment.
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We have a combined experience of over 60 years providing learning solutions to the world’s major organisations and are privileged to have contributed to their success. We view our clients as partners and focus on understanding the needs of each organisation we work with to tailor learning solutions to specific requirements.
We are proud of our record of customer satisfaction. Here is why you should choose us to help you achieve your goals and accelerate your career:
- Quality – our clients consistently rate our performance ‘excellent’ or ‘outstanding’. Our average overall score awarded to us by our clients is nine out of ten.
- Track record – 10/10 of the world’s largest banks have chosen us as there training provider and we have delivered training across the largest banks and have trained over 25,000 professionals.
- Knowledge – our 100+ strong team of industry specialist trainers are world leading financial leaders and commentators, ensuring our knowledge base is second to none.
- Reliability – if we promise it, we deliver it. We have delivered over 25,000 events both in person and online, using simultaneous translation to delegates from over 99 countries.
- Recognition – we are accredited by the British Accreditation Council and the CPD Certification Service. In an independent review by Feefo we scored 4.2/5 on service and 4.7/5 on Coursecheck
Instructor
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Gareth Vance
Biography
Gareth’s banking career spans more than two decades.From 2010 to 2014 he was Head of Barclays Corporates £110 billion liquidity portfolio, tasked with the end-end ownership of pricing and structuring of the portfolio and ensuring that margins were achieved whilst delivering funding ambitions and regulatory requirements.In parallel to this role from 2012 to 2013, Gareth was Co-Head of the Liquidity Management group (50 FTE and £1bn pa business), sitting on the Corporate ALCO and Global Treasury board and worked with treasury colleagues on the adaptation of Basel III/CRD IV within the Corporate Bank - with a particular focus on LCR/Buffer optimisation. Previous to this, Gareth had senior roles within risk solutions at Barclays, where he collaborated with corporate and investment banking colleagues in structuring and marketing bespoke hedging solutions to corporate clients. Prior to Barclays Gareth spent 10 years at Citi where he worked as a Short Term Interest Rate Trader. During that time he made markets and took proprietary risk in G10 currencies against a backdrop of often significant economic turmoil including the Tiger Crisis, formation of the EUR and implosion of the ‘dot com’ bubble. Since leaving Barclays in 2014 Gareth has been consulting on Asset and Liability management, in particular has been focused on the ‘so what’ of Basel III- looking at overcoming challenges in implementing it, it’s impact on Net Interest Margin and ultimately bank strategy.His ciients to date include Barclays, HSBC, Deutsche Bank, RBC, Credit Suisse, ING, Saudi Hollandi Bank, the Bank of England and Central Bank of Ireland, Saudi Arabian British Bank, Saudi Arabian Investment Bank, Santander, Standard Chartered, Standard Bank, Ahli United Bank, EIB, EBRD and many more.Examples of recent engagements include:On behalf of the EBRD working with treasurers of Egyptian, Serbian and Gerogian banks on adopting Basel III Capital and Liquidity RegimeWith the Group Treasurer and regional Heads of Treasury of a Bahrain HQ Gulf regional bank on optimising non wholesale liquidity portfoliosWith the ALM team of a Saudi Arabian Bank on IRRBB including adopting BIS 368 standardsWith the CFO and Treasurer of a Maltese bank on developing a maturity matched FTP mechanismGareth is passionate about developing and getting the best out of people, teams and businesses. His style is energetic and practical, believing that only through applying knowledge can we truly succeed.
Venue
London
