What are the principles and mechanisms of Asset Liability Management in banks?
The purpose of this seminar is to train banking professionals into the principles and mechanisms of a proper ALM. Mismanagement of their ALM has been the main cause of half of the bank’s defaults in the last 20 years. This training has been conceived to help attendees identify and avoid the traps that led to such dramatic consequences, and to make sure their ALM is the source of added value it is meant to be. During this seminar, we address all ALM issues in a structured way: Modelling the bank’s balance sheet, projecting it into the future, looking at the structural risks that can generate adverse deviations, and learn how to manage them. The concepts presented are illustrated by business cases and games to facilitate their assimilation.
On day 1, we position the ALM within the Bank, we define the resources and we look at the organization it requires: What is the ALM ecosystem? How the ALCO, its Steering Committee, works? What are the various ALM teams and their roles? We discover the main financial instruments, the balance sheet and its major risks: Interest rate, liquidity and currency risks. We learn how to transfer these risks from the businesses 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 measuring 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.
Day 3 addresses the management issues related to the ALM and how to deal with operational concerns such as risk control and containment. 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 teams 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 position and role of the ALM, assets valuation principles, balance sheet risks identification, measurement and management, applicable regulations, and finally current concerns.
