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Bank Asset-Liability Management

March 24 - 26, 2020
EUR 1,755 + VAT
Prague, NH Hotel Prague
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.

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
    • Static view
    • Dynamic view
  • What functions needs to be centralized?
    • Functions with effects of scale
    • Functions with compensation effects


  • Nature and role
  • Responsibilities and Components
  • The ALCO

Risks Identification and Cartography

  • From Nuclear Events to Financial Risks
    • The RICAP process
  • Risk Cartography
    • 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
  • Reference Refinancing
    • 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

Case Study: Dexia

Wednesday, March 25

09.00 - 09.15 Recap

09.15 - 12.15 Assets Valuation

Valuation Principles

  • Economic view
  • Regulatory view
  • Accounting view
  • Financial Instruments categorization
  • Generating cash flows
    • Cash flows projection for various loan types
    • Embedded and other options

Regulatory Modelling

  • Exposure to Balance Sheet risks
    • Interest Rate and Liquidity Gaps
    • Behavioral Modelling Principles
  • Regulatory calculations done by the ALM

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
    • Accounting considerations
  • Assessing Liquidity
    • 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
    • IFRS 9
  • ALM and the Non-Financial risks
    • Operational, business and residual risks
  • Aggregating Risks

End of Day: Review and Games

Thursday, March 26

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
  • Hedging
    • Interest rate and other derivatives
    • Value and cash flow hedges
    • Micro and macro hedges
  • Case Study: LTCM

Operational Concerns

  • New production modelling
  • Managing correlations between products
  • IT And Data Concerns
    • Categories of IT tools used to manage balance sheet risks
    • Emerging technologies, machine learning, intelligent reporting

12.15 - 13.15 Lunch

13.15 - 16.30 Perspectives on ALM

Economic Value Management

  • The management mechanisms of the bank
    • Top to bottom: Capital allocation and global limits
    • Bottom-up: Budget and Pricing
  • Articulating Risk and Value
    • Economic Capital
    • Measuring Added-Value
  • The Convergence of Risk and ALM Operating Models
    • Different objectives, different cultures, different silos
    • IFRS 9 breaks the silos

Current Issues

  • Macro-prudential policy
  • Sovereign and Systemic Risks
  • Low interest rate
  • Latest issues and the future of ALM

Seminar Wrap Up and Final Game

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