A comprehensive, three day course on managing risk and profitability under the challenging, post-crisis conditions of ultra-low rates and tightened liquidity and capital standards
The purpose of this seminar is to give you a good understanding of Asset-Liability Management as a tool for managing an institution's balance sheet in pursuit of the optimal balance between revenues and risks.
We start with an introduction to ALM, and we give an overview of the objectives and means of ALM. We also discuss the challenges of managing a bank's profitability and risks in the current environment of extremely low interest rates and heightened capital and liquidity standards.
Next, we explain important concepts such as margin, spread, leverage, surplus, and balance sheet risk. We look at the balance sheets of "typical" institutions and discuss the funding/investment requirements and constraints that arise from the business nature of these institutions.
We then look into how interest rate risk can be measured and managed within the ALM framework. We explain and discuss measures such as Net Interest Income (NII), GAP, and Duration GAP. We also present and explain models for measuring interest rate risk on non-maturing assets and liabilities (e.g. Demand deposits) and for measuring "Value-at-Risk" of trading assets and liabilities.
Further, we explain interest rate risk can be managed with the objective of maximizing net interest income and ROE. We explain how interest rate risk can be managed using derivative instruments such as FRAs, swaps and interest rate options. We explain how "macro swaps" are used by banks to hedge interest rate risk at the balance sheet level, and we show how caps, floors and swaptions can be used to manage the explicit and embedded option risks of a bank's assets and liabilities. We also discuss the challenges that follow from the new EMIR and other regulatory requirements.
We present and explain tools for assessing liquidity risks, including liquidity ratios, cash flow projections and the "liquidity curve", and we explain how liquidity risk can be managed in an ALM context.
Finally, we look at liquidity costs and liquidity pricing factors, and we explain the process of "liquidity transfer pricing".