Euromoney Audit Training

Course overview

'Strategic ALM and Capital Adequacy' examines how ALM can be successfully integrated into the overall strategic direction of your institution. It also teaches how all forms of financial exposure can be defined, measured, monitored and managed. The course will enable you to:

• Identify, measure, manage and control risks
• Formulate and execute business strategy and objectives
• Create strategies for overall balance sheet management
• Effectively manage cash flow, capital allocation and planning
• Develop product, profitability and growth

Summary of course content

• Understand the dynamics of your balance sheet and how to use key performance indicators
• Identify the key risk factors in your balance sheet and how they can be minimised
• Adopt effective cash flow management and Value-at-Risk (VaR) techniques
• Manage crucial interest rate and liquidity exposures
• Improve the efficiency of your Asset Liability Committee (ALCO)
• Enhance your capital adequacy planning and balance sheet management techniques

PLUS

• Expanded transfer pricing section that covers recent pronouncements of international regulatory bodies
• A detailed explanation of Basel III

Benefits of Attending

This course provides a proactive approach to managing your balance sheet, covering the latest FX, interest rate and liquidity risk management instruments and strategies.

Methodology

This course uses lectures, group discussions, practical case studies and exercises throughout.

Computer-Based Exercises

All participants are required to bring a laptop with installation of Microsoft Excel^® and with a functioning CD ROM read drive.

Who should attend this training course?

• Members of ALCOs and other asset/liability managers
• Finance managers and management accountants from banks and financial institutions
• Internal auditors
• Banking analysts
• Mutual fund and portfolio managers
• Risk managers
• Senior representatives of multi-national corporations

Supporting publications

   

DAY ONE

ALM introduction and overview

• The roles of ALM in financial institutions
• The strategic need for effective ALM
• Risk management in ALM
• 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 (NII)

• Identifying interest-rate sensitive assets and liabilities that impact NII
• Gap analysis of 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

Case study: Calculating and managing gap in an Asian bank

Managing NII risks with interest rate and foreign exchange derivatives

• Interest rate and foreign exchange derivatives
• Pricing forwards, futures, swaps, and options
• Mark-to-market and mark-to-model techniques
• Applications of interest rate derivatives in NII risk management
• Hedging strategies
• Accounting, liquidity, and counterparty issues of derivatives in ALM
• Measuring and managing cost-to-close metrics

Excel exercise: Measuring and managing gaps

DAY TWO

Transfer pricing and consumer financial products in ALM

• Transfer pricing for wholesale money sold through a funding centre
• The role of retail and commercial deposits in ALM
• Estimating deposit runoff, elasticity, and liquidity impacts
• Structuring, pricing, and marketing various types of deposits in ALM
• Pricing embedded options in transfer pricing
• Reflecting appropriate liquidity costs in transfer pricing
• Organisational interactions of consumer products businesses in ALM
• Transfer pricing policies of consumer funding sold to treasury
• New regulatory requirements and best practices in transfer pricing

Excel exercises: Determining transfer prices for wholesale and deposit funding

Statistical techniques in ALM

• Basic statistical distributions, moments, and techniques
• 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

Excel exercises: Calculating analytical parametric VaR

Market risks in asset portfolios and ALM

• Trading, available for sale, and investment portfolios in various 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 and MBO portfolios
• Risks in off-balance sheet commitments and contingencies
• Risks in derivatives portfolios
• Risks in credit card portfolios and ABS products
• Risks in equity portfolios and equity arbitrage strategies
• Understanding equity beta and alpha in an ALM context
• Establishing policies and controls for market risks

          Excel exercises: VaR for factor mapped correlated portfolios

ALM risks in structured products and alternative investments

• Structured investment products
• Capital guaranteed notes
• Constant Proportional Portfolio Insurance (CPPI) products
• Leveraged credit-index and CPDO products
• Managing risks in arbitrage portfolios
• Special liquidity and other concerns in alternative investments

Case study: Structured notes and deposits

Credit risks in asset portfolios and ALM

• Credit risks in commercial/retail loans, credit risky bonds, and derivatives
• Interpreting and using credit spreads in risk - return analyses
• Expected and unexpected credit losses
• Credit metrics
• Probability of Default (PD)
• Exposure at Default (EAD)
• Loss Given Default (LGD)
• 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 credit VaR in ALM frameworks
• Establishing policies and controls for credit portfolio risks

Excel exercise: Pricing credit risky bonds with attribution to sensitivities of benchmark yields and credit spreads

DAY THREE

Credit portfolio risk management 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) and other credit derivatives products
• CDS pricing and mark-to-market valuation
• Comparing and contrasting credit swaps and securitised CDO/CLOs as ALM tools
• CDS and cash/hybrid CDO/CLO product strategies in ALM portfolio management

Case study: Cash and synthetic securitisation structures

Operational risks in ALM

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

Case study: Advanced management approach for operational risk

Financing strategies and liquidity risks 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
• Ratings strategies and enterprise risk
• 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 new regulatory capital requirements on financing strategies

Case study: Contingent covertible capital notes for Basel III

DAY FOUR

Managing liquidity risks

• What can go wrong in liquidity management
• Examples and lessons of 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

Case study: Working with templates for new liquidity and stable funding Basel ratios

ALM and regulatory/economic capital

• The new Basel III regulatory environment for financial institutions
• Summary of Basel II and Basel III impacts on credit, market, and operational risk management
• The impacts of Basel III on practical 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

Case study: Defining and calculating economic capital 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 capital management and employment

Case study: Use of economic capital for performance measurement by business unit

• 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.

  Courses run by this instructor

  • Treasury Management

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.

Treasury Management

29 May 2012 - 1 Jun 2012 (Singapore, Singapore)
5-8 Nov 2012 (Hong Kong, Hong Kong)

The course will examine in detail the complexities of all treasury management issues whilst expanding your knowledge of the essential concepts and the inherent risks.

Liquidity Risk Management

15-16 Mar 2012 (Singapore, Singapore)
20-21 Sep 2012 (Hong Kong, Hong Kong)

This course focuses on all relevant liquidity risk measures that are being adapted to reflect the newly created complexities of modern financial markets