Strategic ALM, Treasury and Capital
Course Outline
A three-day advanced programme covering best practices in Asset-Liability Management (ALM), as well as ALM’s relationships to capital and performance for financial institutions. ALM will be shown to have evolved beyond basic management of incremental asset and liability positions to a more comprehensive process that reflects the management of an institution’s economic capital.
Course Objectives
As a result of attending this course delegates will be able to:
- Map the evolution of ALM to their specific type of financial institution
- Assess ALM reward-risk opportunities for various business activities
- Measure, implement, and manage ALM decisions for banking books as well as other major activities, including investments, liquidity, and trading positions
- Assess opportunities to incorporate a broad range of businesses, including credit units, into ALM
- Understand appropriate roles for derivatives in ALM
- Organise and manage successful ALM and ALCO reports and meetings
- Review and integrate financing strategies into the ALM plan
- Develop and implement comprehensive transfer pricing schemes
- Integrate liquidity management into ALM practices
- Consider business unit and entity-wide reward-risk budgeting under the auspices of ALM
- Design a capital plan for the institution consistent with risks and regulations
- Understand the implications of Basel II and Basel III on capital development
- Learn how ALM can highlight returns on economic or risk-adjusted capital
Who The Course is For
- Members of the Asset Liability Committee (ALCO)
- Treasury professionals
- Money market and FX traders
- Management of credit, deposit, and other major business units
- Liquidity investment managers and traders
- Capital markets teams covering financial institutions
- Strategic planning professionals
- Risk managers and risk controllers
- Financial officers and auditors (internal and external)
- Regulators overseeing banking, investment, and trading books
- IT professionals specialising in treasury systems
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Prior Knowledge
It is assumed that participants have a basic familiarity with a bank’s treasury operations, banking activities, and fundamental market instruments such as forwards, swaps, and options.
This
program is eligible for
24 Continuing Education credit hours from the CFA Institute. If you are a
CFA Institute member, CE credit for your participation in this program
will be automatically recorded in your CE Diary.
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Day One
ALM Introduction and Overview
- The evolving role of ALM in various financial institutions
- Strategic ALM and economic capital
- ALM and incremental asset-liability growth
- Expanding portfolio of assets and liabilities within the ALM perspective
- Mapping financial assets and liabilities to returns on risks
- Importance linkage of liquidity management and transfer pricing through ALM
- ALM organizational requirements
- ALM functions related to Treasury, Finance, and Risk Management
- Regulation, financial markets, and operations ALM perspectives
- Institutional characteristics of successful ALM
- The role of ALM in reward-risk budgeting
- Current market stresses challenging ALM
- Development of ALM in the future
Balance Sheet Sizing and Development
- Stock flow balance sheet analyses
- Simultaneity of asset and liability creation
- Linkage/de-linkage of reserves and money
- Regulatory limitations: capital, leverage, liquidity, and other constraints
- Management of reserves and central bank policies
- Narrow and “real bills” banking compared to broad investment/universal banking
- Balance sheet maturity transformation
- Banking positions evolving to securities and off-balance sheet items
- Impacts of deposit structures and sensitivities
- Transfer pricing objectives, techniques, and policies
Excel exercises
ALM Frameworks for the Banking Book
- Creation and categorization of assets and liabilities in the banking book
- Measuring interest rate, liquidity and currency gaps
- Identifying interest-rate sensitive assets and liabilities that impact NII
- Traditional gap analysis of standard asset and liability products
- Basis, yield curve twist, and re-investment/re-funding risks
- Measuring NII risks with static and dynamic sensitivity analysis
- Measuring cost-to-close exposures for banking books
- Analysis of impacts on cash flow, accounting performance and economic value
- Multi-currency NII ALM techniques and strategies
- Complications from financial, contractual, and real options in assets and liabilities
- Special challenges in transfer pricing to asset building and credit businesses
- Estimating impacts of volatility and correlations in assets and liabilities
- Stress testing NII management approaches
- NII impacts on liquidity and capital management
- Earnings-at-risk metrics for NII
- Impacts on capital from income changes and financial performance
Case study and Excel exercises
Day Two
Market Value Returns and Risks for Investment and Trading Portfolios
- Trading, available for sale and investment portfolios in various types of financial institutions
- Conversion of banking book assets and liabilities into market value assets
- Portfolio yields, mean – variance metrics and controls
- Price risks in bonds and fixed income portfolios
- Value-at-risk (VaR) and other analytical frameworks for market portfolios
- Commercial and retail mortgage securities
- Behavioural sensitivities on valuations and returns
- Value impacts of off-balance sheet commitments and contingencies
- Credit card portfolios and various ABS products
- Establishing ALM policies and controls for market portfolios
- Impacts on capital from market value changes and financial performance
- Transfer pricing for market portfolios
Excel exercises
Critical Applications for Interest Rate and FX Derivatives in ALM
- Review of interest rate and foreign exchange derivatives used in ALM
- Mark-to-market and mark-to-model techniques
- Applications of interest rate derivatives in NII, market value portfolios, and liquidity/funding management
- Hedging strategies and effectiveness
- Suitability and appropriateness of standard and non-standard derivatives structures used by ALM
- Accounting, liquidity and counterparty concerns from uses of derivatives in ALM
- Derivatives hedges counterparty valuation adjustments (CVA)
- Own-debt fair value adjustments
- Impacts on capital from derivatives applications and financial performance
Excel exercises
ALM Involvement with Credit Exposures
- Credit exposures in commercial / retail loans, credit risky bonds and counterparty trades
- Credit metrics for expected and unexpected losses
- Developing credit value-at-risk for return-risk budgeting
- Interpreting and using credit spreads
- Benefits and challenges of active credit portfolio risk management
- Using credit derivatives to manage and / or securitize credit risk
- Applications of Credit Default Swaps (CDS), credit linked notes, and other credit derivatives products in ALM
- Credit risk management through securitization and strategic structured finance
- Transfer pricing adjustments using own-credit spreads and country credit spreads
- Impacts on capital from involvement in credit concerns by ALM and financial performance
- Establishing ALM policies and controls for credit portfolio risks
Excel exercises
Day Three
Financing Strategies Managed by ALM
- Defining the mix of financing alternatives
- The relationship of liquidity, financing, and capital
- The role of retail and commercial deposits in ALM
- Estimating deposit run-off, elasticity and liquidity impacts
- Transfer pricing policies of consumer and commercial deposits for central funding
- Developing and maintaining financial market access
- Framework for measuring and optimizing financing choices
- Managing liquidity and financing maturity profile
- Maintaining desired rating and financial flexibility
- Risks and rewards inherent in various financing choices
- Use of derivatives in financing strategies
- Securitization and credit enhancement strategic financing strategies
- Opportunities for structured financing products and strategies
- Off-balance sheet and special purpose vehicle financing
- Impact of regulatory capital requirements on financing strategies
- Regulatory requirements for liquidity maintenance
Excel exercises
ALM and Capital: Regulatory and Economic
- Relationship of regulatory capital and economic capital
- The impacts of Basel II and Basel III on the practice of ALM
- Linkage of regulatory capital to ALM portfolios
- Credit, market, and operational risk capital
- Review of existing and new capital standards, supervisory review, and market transparency requirements
- Evolution of modeling requirements and the role of ALM
- New focus of Basel III on tangible common equity, liquidity, and leverage
- Update on Basel III decisions
- Basel III future phase-in projections
Workshop Conclusion: ALM and Financial Performance
- Balancing financial performance targets within risk management policies and controls
- Developing acceptable business and entity-wide ALM profiles
- Business unit and entity-wide return-risk budgeting
- Measuring ALM financial performance
- Returns on economic and risk-adjusted capital
- Efficient employment and allocation of capital
- The role of ALM in the deployment, management and conservation of capital
- Development of resources for ALM and preparing for the future
