Asset & Liability Management Training Course

Getting the right balance is always the challenge when banks and financial institutions look at the issue of ALM. Many courses on the topic tend to be dry and text book driven, but this is the only Asset & Liability Management course that utilises a live simulation throughout the entire course. This unique approach rapidly builds the knowledge and skills in the ALM arena.

This highly intensive programme provides the perfect balance between theory and practice, focusing on all the key methodologies employed withing ALM as a discipline.  It will provide you with a practical insight into industry standard techniques and topical regulatory issues.

Additionally, you will cover all the major approaches to the measurement and management of structural risk and hedging techniques.  You will have the unique opportunity to work through your very own business case scenario and gain hands-on experience of best practice risk analysis techniques.  All sessions are reinforced with highly practical case studies and supported by real-world computer simulation exercises.
 

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Day 1

Successfully Implementing A/LM

• Objectives of the modern ALCO
• Key success factors
• What targets to set?
• What risks to measure?
• Current trends in A/L management
  –Regulatory changes
  –Internal/external audit implications
  –Valuation vs. accounting

This introductory session is designed to provide delegates with the opportunity to focus on their particular institutions’ approach to Asset and Liability Management identifying strengths and weaknesses in current practice. Current developments in relation to regulation and audit (e.g. Basel III, IFRS9) are incorporated.

Sample Banks Static Risk Assessment

The group will look at 3 sample bank structures,initially on a purely financial return basis and choose a preferred structure on that basis.

• Overview
• Bank balance sheet review
• Financial reports
• Which bank do you want to be?

Strategic Liquidity Management

A full reprise of best practice liquidity management from the ALCO and strategic perspective, incorporating the latest developments in regulatory oversight.

• Liquidity overview
• Cost of liquidity
• Liquidity and ALCO

Strategic Capital Management

This module focuses on the key issues involved in capital management from the ALCO and interest rate risk perspective and the possible developments affecting this important area over the next regulatory phase.

• The role of capital
• Bank regulatory capital requirements
• Focus on economic capital
• The role of ALCO in capital planning

Funds Transfer Pricing

Acknowledged as the key tool in allocating the risk premiums required for correct product pricing, this session will highlight and give practical insights into the use by ALO and other senior management into implementing this discipline effectively.

• Role of FTP
• Transfer pricing as a management tool
• FTP and ALCO

Case Study: A case study using 2 business units, comparing basic approaches

Understanding Structural Risk

A thorough grasp of the balance sheet structure and the product interactions is an essential for any successful manager. This module outlines the approaches one could apply to understand the true profile of a combined balance sheet/group.

• Managing disparate operational structures
• Identifying natural hedges

Quantifying Banking Book Risk

The rest of the day focuses on the techniques currently used to identify and manage interest rate risk at the balance sheet (banking book) level. It is separated into the generic areas of static and dynamic risk evaluation and incorporates on the final day the analysis and management of asymmetric risk and product optionality. In the following modules we look at the most widely used static approaches required by regulators.

GAP Analysis

The most widely used and oldest technique, GAP (or Mismatch) Analysis provides an initial view of both liquidity and interest rate risk profiles.

• Benefits and drawbacks
• Basic calculations
• Symmetry versus asymmetry

Valuation and Price Risk

The second pillar of static analysis is the valuation approach. This session covers the basic theory but concentrates on it’s use in ALM and Banking Book risk, particularly under Basel II and beyond.

• Valuing a bond
• Macaulay / modified / effective duration
• Duration and banking book risk

Static Risk Evaluation

Delegates will review the perceived value risk in each sample bank and review their choice of preferred bank. They will then be presented with a risk/reward analysis based on a scorecard approach.

• Comparisons so far incorporating GAP and duration risk elements
• Which Bank do you want to be?
• Applying a balanced risk/reward approach

Day 2


Managing Banking Book Risk

Day 2 covers the practical issues of managing risk and the tools ALM managers can use. Simulation sessions provide a practical experience for delegates to analyse and hedge Banking Book risk and gain a thorough insight into the various ways of reporting.

Hedging in ALM

The use of derivatives for the management of Banking Book risk is acknowledged to be a different approach and management skill level from dealing and trading. This module focuses on the best practice approach and typical issues this raises for management.

• Interest rate swaps
  -Structure
  - Presenting in GAP & valuation reports
  - Uses at ALCO
• Hedging concepts and objectives

Symmetric Hedging Decisions

Having defined the perceived risk profiles of the 3 Sample Banks from a GAP and valuation perspective, delegates will be asked to decide on initial hedge strategies utilising interest rate swaps.

Dynamic Simulation Analysis

Widely used and accepted by regulators, simulation techniques can provide a significant improvement to a bank’s risk analysis toolkit - when correctly implemented and understood. This session will ensure management are fully aware of the implications and uses of this technique.

• Basic approach
• Benefits and drawbacks
• Deterministic simulation approach
• Rate shock analysis

Interpreting ALCO Reports (Introduction)

The presentation and interpretation of ALCO reports is a key area for all banks. This session aims to bring together the three main analytical disciplines in a practical case study environment with a sample ALCO pack and a banking book swap hedge problem:-

Assessing Hedge Effectiveness

Delegates will assess the effectiveness of a banking book swap hedge and make recommendations on its suitability using a range of ALCO Reports.

• GAP
• Valuation and price sensitivity
• Rate shocks

Hedge Effectiveness Round Table

Delegates have the opportunity to discuss the issues raised in the previous case study and propose their preferred actions.

Symmetric Hedge Simulation Results

The groups swap hedge strategies have been simulated and initial ALCO reports produced. This session allows delegates to assess the success of their hedges and resulting risk/reward ratio.

• Risk assessments and scores

Final Symmetric Hedging Decisions

Delegates will be given an opportunity to refine their initial hedge strategies utilising interest rate swaps with an aim to minimise the perceived static risk in each sample bank

Day 3

Asymmetric Risk Analysis

The final day incorporates the more advanced techniques of computer based simulation analysis and the quantification and management of embedded optionality.

Asymmetric Risk

A constant challenge to today’s ALM manager, the quantification and management of product optionality has always been a difficult area. This session will outline some typical examples and their effects on risk profiles within the balance sheet, together with the typical derivative tools used to hedge these risks.

• Evaluating embedded options
• Hedging with caps and floors

Sample Bank Simulation Results

Here we aim to bring all the factors together and delegates will choose which bank profile they want.

• Review of rate shock profiles
• Asymmetric risk assessments
• Static vs dynamic risk comparisons

Asymmetric Hedge Decisions

Delegates will be required to develop a comprehensive hedging strategy to reduce overall risk to within prescribed limits for both earnings and value. In addition to swaps, strategies incorporating caps and floors can be implemented.

• Assessing simulated risk profiles
• Asymmetric hedging strategies

Asymmetric Hedge Simulation Results

The group’s option hedge strategies have been simulated and a more comprehensive set of ALCO reports produced. This session allows delegates to review the success of their combined hedges andresulting risk/reward ratio.

• Risk assessments and scores

Value at Risk vs. Earnings at Risk

The use of VaR and EaR as risk control methodologies is  widespread. An understanding of the approach and management implications is required of any ALM executive.

• Methodologies compared
  –VaR
  –EaR
• Valuing the balance sheet
• Implications for ALM

Advanced Analysis – Monte Carlo Overview

The use of Monte Carlo (stochastic) techniques provides unique insights into the risk profile of any bank. This session outlines the general approach and its’ uses.

• Monte carlo process explained
• Methodologies compared
• Benefits and drawbacks

Applying Monte Carlo Analysis

An extension of a previous case study which highlights the advantages and insights that can be gained in using this methodology.

• Assessing path risk
• Implications for A/LM

Final Sample Bank Reviews

Bringing all the analysis together, delegates will review their choice of bank in terms of a full risk/reward analysis.

Round Table & Course Closure

A final review of the whole course and a final opportunity for delegates to introduce any issues which may be of interest to the course in general.

By attending this highly intensive practical programme, you will:

• Learn how to assess the strengths and weaknesses in your current Asset and Liability Management process
• Benefit from practical hands-on training in the very latest best practice risk analysis techniques and strategies
• Dramatically enhance your practical understanding of strategic balance sheet management issues such as the impact of Basel II and IAS requirements on ALM decision making
• Appreciate the conflicts that can arise at the ALCO level in the application of both earnings and valuation methodologies to bank balance sheet management
• Gain a comprehensive understanding of symmetric and asymmetric hedging techniques and develop effective balance sheet hedging strategies banking and credit management