Bank Asset-Liability Management
Dates: November 5 - 7, 2019
Price: EUR 1,755
Location: Prague, NH Hotel Prague
Lecturer: Jean-Bernard Caen
How to model and project the balance sheet of the bank?
What are the key equilibrium and the major threats?
How to classify and handle balance sheet risks?
Are the regulatory and the economic views coherent?
What is expected from ALM managers?
When should management actions be triggered?
What can we learn from passed crises?
What are the current issues?
What are the principles and mechanisms of Asset Liability Management in banks?
The purpose of this 3-day seminar is to introduce the principles and mechanisms of asset liability management in banks. During these three days, we address all the issues relevant to this essential matter, from balance sheet modelling and projection to managing structural risks. These are illustrated by a number of business cases and exercises that facilitate the assimilation of the concepts and techniques presented.
On day 1, we sketch the global functioning of the Bank, to position the "raison d'etre" of the ALM in regards to the business objectives and their interactions. Once the ALM's role is defined, we devise the resources and the organization required for a successful mission. This includes describing the ALM ecosystem, with its Steering Committee called the ALCO, the various teams and their responsibilities, from the valuation of financial instruments to the management of balance sheet risks such as interest rate, liquidity and currency risks. Also, we learn how to transfer these risks to the ALM using appropriate mechanisms and funds transfer pricing.
Day 2 focuses on the techniques used for valuing assets and liabilities and measuring balance sheet risks. In order to value financial instruments, we learn how to generate their expected future cash flows under various conditions. We discover how aggregating these cash flows and assessing possible future cash shortfalls form the basis for assessing balance sheet risks. We also look at applicable regulations (LCR, NSFR, IRRBB...) and put them in perspective with the economic reality. Issues related to options and credit risk (IFRS 9) are also addressed. A number of exercises and games facilitate assimilating these principles and techniques.
Day 3 addresses the management issues related to ALM and operational matters. You learn how to control and mitigate risks, and a number of key questions are addressed: What risks should be taken? Up to what level? How to hedge risks? How does ALM relate to risk management and to risk budgeting and risk appetite? What is expected from ALM professionals and how do they interact with other functions in the bank? Finally, we look at the current matters of concern to the ALM community, such as the macro prudential policy, low interest rates, the resolution fund and new technologies.
We finish the seminar with a series of exercises/games aimed at rehearsing all the major elements learned during these three days: The role and the positioning of the ALM, assets valuation principles, balance sheet risks identification, measurement and management, applicable regulations, and finally current concerns.
Tuesday, November 5
09.00 - 09.15 Welcome and Introduction
09.15 - 12.15 The ALM in the Bank
A Global View of the Bank
The role and the organization of the Bank
Businesses and business support
Finance and Risk
The bank's balance sheet
What functions needs to be centralized?
Functions with effects of scale
Functions with compensation effects
Nature and role
Responsibilities and Components
Risks Identification and Cartography
From Nuclear Events to Financial Risks
The RICAP process
What business models generate what risks?
Overview of Balance Sheet Risks
Interest rate, FX, Equity and Liquidity risks
12.15 - 13.15 Lunch
13.15 - 16.30 Balance Sheet Risks Framework
Funds Transfer Pricing
Commercial and Financial Margins
Policies for setting the margins
Articulation with the global interest margin of the bank
Setting up the right commercial incentives
The benefits of reference refinancing
The Regulatory Environment
The Regulatory Approach
Basel 1, 2 and 3
The new EU banking package
CRD V/CRR II/BRRD II
Case Study: Dexia
Wednesday, November 6
09.00 - 09.15 Recap
09.15 - 12.15 Assets Valuation
Financial Instruments categorization
Generating cash flows
Cash flows projection for various loan types
Embedded and other options
Exposure to Balance Sheet risks
Interest Rate and Liquidity Gaps
Behavioral Modelling Principles
Regulatory calculations done by the ALM
LCR, NSFR, IRRBB
12.15 - 13.15 Lunch
13.15 - 16.30 Balance Sheet Risks Measurement
Balance Sheet Risks
Measuring the Interest Rate Risk of The Banking Book
From gaps to interest rate curves modelling
Sensitivity and duration, embedded options, prepayments
Measuring Spread and Funding Risks
Articulating liquidity, spread and funding risks
Liquidity gap and ratios, LCR and NSFR
Liquidity reserves management
Case study: Credit National
Other risks and how they relate to the ALM
ALM and Credit Risk
ALM and the Non-Financial risks
Operational, business and residual risks
End of Day: Review and Games
Thursday, November 7
09.00 - 09.15 Recap
09.15 - 12.15 Managing Balance Sheet Risks
Controlling Risks, Hedging and Mitigation
Tools for Risk Control and Mitigation
Limits, securitization and hedging
Interest rate and other derivatives
Value and cash flow hedges
Micro and macro hedges
Case Study: LTCM
New production modelling
Managing correlations between products
IT And Data Concerns
Categories of IT tools used to manage balance sheet risks