In every financial institution sophisticated Asset Liability Management (ALM) has become imperative. Volatile global markets, proliferation of new and more complex financial products, changing regulatory environments and increased emphasis on performance have made asset liability management an increasingly challenging task. This Euromoney Training course is an intermediate-level programme designed to provide you with the practical "hands-on" skills that you can apply to your work life immediately. You will review strategic and tactical considerations in traditional ALM frameworks extending this analysis to include credit activities, alternative investments, SIVs, derivatives applications, consumer liability products, structured financing and capital strategies.

How will this course assist you?

Gain a greater understanding of the strategic, technical and operational aspects of global ALM in a variety of financial institutions, in 4-days this course will cover:

• ALM strategies - best practice 
• Risks in financial assets, liabilities and off-balance sheet positions
• Market, credit, liquidity management and operating risks in ALM
• Applications of interest rate, foreign exchange, equity and credit derivatives
• Measuring risk-adjusted performance relative to regulatory and economic capital
• How to use transfer pricing strategically in ALM
• Implementing alternative, structured investment portfolios and Special Investment Vehicles (SIVs)

Who should attend?

• Treasury Managers
• Chief Financial Officers
• Asset Liability Manager
• Central Banker
• Investment Professional Managers involved in ALM

Day 1

Registration commences at 8:30
Programme runs from 9:00 - 5:00 daily

ALM Introduction and Overview

• The roles of ALM in various financial institutions
• The strategic imperative for effective ALM
• Risk management in the ALM process
• Regulatory, financial markets, and operations perspectives of ALM
• Mapping of institutional assets and liabilities to various types of risks
• Organisational and institutional requirements for ALM
• Transfer pricing issues in ALM
• The role of Treasury in ALM
• Challenges to the practice of ALM

 ALM Frameworks for Net Interest Income

• Identifying interest-rate sensitive assets and liabilities that impact net interest income (NII)
• Traditional gap analysis of standard financial asset and liability products
• Basis and yield curve twist risks
• Measuring NII risks with static and sensitivity analyses
• Analyses of impacts on cash flow, accounting performance, and economic value
• Multi-currency NII ALM
• Complications from financial, contractual, and real options in assets and liabilities
• Estimating impacts of volatility and correlations in assets and liabilities
• Stress testing techniques in ALM
• NII ALM impacts on liquidity and capital management
• Teams work: short exercises and case studies

 

Team work: short Excel exercises and case studies.

 Managing NII risks with interest rate and foreign exchange derivatives
 

• Review of interest rate and foreign exchange derivatives used in ALM
•  Pricing forwards, futures, swaps and options using integrated frameworks
•  Mark-to-market and mark-to-model techniques
•  Applications of interest rate derivatives in NII risk management
•  Hedging strategies and effectiveness
•  Accounting, liquidity and counterparty concerns from uses of derivatives in ALM
•  Managing cost-to-close exposure

Team work: short Excel exercises and case studies.

Optional specialised module: consumer financial products in ALM
 

• The role of retail and commercial deposits in ALM
•  Estimating deposit run-off, elasticity and liquidity impacts
•  Structuring, pricing and marketing various types of deposits in ALM
•  Characteristics of structured products, insurance and other alternative consumer products
•  Organisational interactions of consumer products businesses in ALM
•  Transfer pricing policies of consumer funding to treasury

Team work: short Excel exercises and case studies.

 Individual evening work

Day 2

 Statistical techniques in ALM
 

• Review of basic statistical distributions, moments and techniques used in modelling
•  Measuring risks with standard parametric approaches
•  Value at Risk (VaR) techniques
•  Advantages and limitations of VaR
•  Correlated modeling of risk in ALM
•  Measuring risks with Monte Carlo simulation techniques
•  Building non-standard Monte Carlo risk modelling

Team work: short Excel exercises and case studies.

Market risks in asset portfolios and ALM
 

• Trading, available for sale and investment portfolios in various types of financial institutions
•  Portfolio mean – variance metrics and controls
•  Risks in bonds and fixed income portfolios
•  Duration, DV01, convexity, VaR and other analytical frameworks for fixed income
•  Risks in:
      Commercial and retail mortgages, MBS and sub-prime portfolios
      Off-balance sheet commitments and contingencies
      Derivatives portfolios
      Credit card portfolios and various ABS products
      Equity portfolios and equity arbitrage strategies
   Specific risks in portfolios of corporate bonds and equities
   Understanding equity beta and alpha in ALM context
   Establishing policies and controls for market risks

Team work: short Excel exercises and case studies.

 Credit risks in asset portfolios and ALM
 

• Credit risks in commercial / retail loans, credit risky bonds and derivatives
•  Interpreting and using credit spreads
•  Expected and unexpected credit losses
•  Credit risk metrics: Probability of Default (PD), Exposure at Default (EAD), Loss Given Default (LGD) and credit correlation
•  The linkage of PD, EAD and LGD to credit spreads
•  Default intensities and migrations
•  Estimating recovery rates and LGD from real-world experience
•  Estimating default probabilities from current market data
•  Real-world vs. risk-neutral default probabilities
•  Estimating and using credit value at risk in ALM frameworks
•  Establishing policies and controls for credit portfolio risks

Team work: short Excel exercises and case studies.

 Optional specialised module: ALM risks in alternative investments
 

• Structured investment products
•  Capital guaranteed notes
•  Overview of CDO products
•  Constant Proportional Portfolio Insurance (CPPI) and CPDO products
•  Arbitrage portfolios
•  Recent challenges from Special Investment Vehicles (SIVs)
•  Liquidity and other concerns in alternative investments

Team work: short Excel exercises and case studies.

 Individual evening work

Day 3

Credit portfolio risk management techniques in ALM
 

• Benefits and challenges of active credit portfolio risk management
•  Credit structuring alternatives as ALM risk mitigants
•  Using credit derivatives to manage and / or securitise credit risk
•  Review of Credit Default Swaps (CDS), credit linked notes and other credit derivatives products
•  CDS pricing and mark-to-market valuation
•  Comparing and contrasting credit swaps and securitized CDO / CLOs / CBOs
•  CDS and cash / hybrid CDO / CLO / CBP product strategies in ALM portfolio management
•  Overview of copula techniques models and their applications in pricing correlation in ALM

Team work: short Excel exercises and case studies.

Operational risks in ALM
 

• Operational risk management framework in ALM
•  Evidence of operational failures
•  Key components of operational risk
•  Specific tools and models for operational risks in ALM
•  Operational value-at-risk
•  Operational risk transfer techniques

Team work: short Excel exercises and case studies.

Financing strategies in ALM
 

• Defining the mix of financing of alternatives
•  The relationship of financing vs. capital
•  Developing and maintaining financial market access
•  Measuring costs of financing alternatives
•  Framework for optimising financing choices
•  Managing liquidity and maturity profile
•  Maintaining desired rating and financial flexibility
•  Market risks inherent in financing choices
•  Use of derivatives in financing strategies
•  Securitisation and credit enhancement financing strategies
•  Impact of regulatory capital requirements on financing strategies

Team work: short Excel exercises and case studies.

 Optional specialised module: strategic ALM products and techniques
 

• Liability-driven investment strategies
•  Structured investment products as strategic ALM
•  Opportunities for structured financing products and strategies
•  Off-balance sheet and special purpose vehicle financing

Team work: short Excel exercises and case studies.

Individual evening work

Day 4

ALM and liquidity
 

• What can go wrong in liquidity management
•  Examples and lessons of recent liquidity challenges
•  Linkages of liquidity risks to market, credit and operations risks
•  Developing policies and controls on liquidity risk management
•  Elements of liquidity contingency planning
•  The role of ALM in liquidity management

Team work: short Excel exercises and case studies.

ALM and regulatory capital
 

• The regulatory environment for financial institutions
•  The impacts of Basel II on the practice of ALM
•  Linkage of regulatory capital to risk portfolios
•  Regulatory capital mitigation strategies
•  Regulatory impact of financing and capital decisions
•  Relationship of regulatory capital and economic capital

Team work: short Excel exercises and case studies.

ALM and financial performance
 

• Balancing financial performance targets within risk management policies and controls
•  Developing acceptable business and entity-wide risk profiles
•  Measuring risk-adjusted financial performance
•  Returns on economic capital
•  Efficient employment and allocation of capital
•  The role of ALM in the deployment, management and conservation of capital

Team work: short Excel exercises and case studies.

Course summary and close

• William Allen

  William Allen was previously a senior associate consultant with Seabrook Associates in Boston, Massachusetts. Prior to that he worked with J.P. Morgan in various securities and derivatives trading, arbitrage, hedging, and marketing activities in London and New York.
  
  He pursued MBA and doctoral studies in international banking and capital markets at the Harvard Business School. 
  
  William received the Elijah Watts Sells Award and the John S. Glenn Gold Medal for outstanding performance on the Certified Public Accountants (CPA) examination while he was with Ernst and Whinney, an international accounting firm.
  
  At the same time, he was awarded the Robert Beyer Bronze Medal for outstanding performance on the Certified Management Accounting (CMA) examination. Mr. Allen also earned the professional designation of Chartered Financial Analyst (CFA) while serving as the chief financial and investments officer of Rhodes College.

Strategic ALM & Capital Adequacy

Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.

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