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
- Best practices of ALM strategies
- NEW: Impacts of recent Basel III and liquidity ratios on ALM
- NEW: Current initiatives and best practices in transfer pricing
- 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
- NEW: Alternative designs for ALCO organisation and information packages
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 delegates 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
Testimonials
“Highly recommended course!”
Senior VP, First Gulf Bank
“ The training course was great. It made us realise that ALM is one of the key areas of knowledge required for the dealer and treasury department”
Dealer, Bank of Tokyo Mitsubishi
“ A very challenging and intellectually stimulating experience”
Head of Section, Fiscal Policy Office, Ministry of Finance Indonesia
Supporting publication
Day 1
ALM introduction and overview
- The roles of ALM in various financial institutions
- The strategic imperative for effective ALM
- Risk management in 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 (NII)
- Identifying interest-rate sensitive assets and liabilities that impact net interest income
- 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
Managing NII risks with interest rate and foreign exchange derivatives
- Review of 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 and effectiveness
- Accounting, liquidity, and counterparty concerns arising from derivatives in ALM
- Measuring and managing cost-to-close metrics
Teams work: Short exercises and case studies
Day 2
Statistical techniques in ALM
- Review of 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 techniques
Teams work: Short exercises and case studies
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 various ABS products
- Risks in equity portfolios and equity arbitrage strategies
- Understanding equity beta and alpha in ALM context
- Establishing policies and controls for market risks
Teams work: Short exercises and case studies
Credit risks in asset portfolios, counterparty trades and ALM oversight
- 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
Teams work: Short exercises and case studies
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) 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 anagement
Teams work: Short exercises and case studies
Transfer pricing and consumer financial products in ALM
- 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
- Characteristics of insurance and other alternative consumer products
- Organisational interactions of consumer products businesses in ALM
- Transfer pricing policies of consumer funding sold to treasury
Teams work: Short exercises and case studies
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 regulatory capital requirements on financing strategies
Teams work: Short exercises and case studies
Day 4
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
Teams work: Short exercises and case studies
ALM and regulatory/economic capital
- The regulatory environment for financial institutions
- Summary of Basel II and Basel III impacts on credit, market, and operations risk management
- The impacts of Basel II and 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
Teams work: Short 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 capital management and employment
Teams work: Short exercises and case studies
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Mr Allen is an expert consultant in ALM, treasury, capital markets and corporate finance. He has consulted for most large financial institutions and many large corporates and investors in major markets around the world.
He has published articles and books on various finance, capital markets, derivatives, and risk management topics. His emphasis is on the practical implementation of financial tools and techniques within various banks, institutional investors, government and supranationals, and corporates.
Previous to his in consulting career, Mr Allen worked with J.P. Morgan in various treasury, ALM, capital markets, and derivatives activities in London and New York. He previously worked as the Chief Investment Officer/Chief Finance Officer of a university. Mr Allen continues to act as an advisor to several hedge fund managers for market-neutral and other structured derivatives strategies.
Mr. Allen took his MBA and Doctoral (DBA) studies in international banking and capital markets at the Harvard Business School. He received the Elijah Watts Sells Award and the John S. Glenn Gold Medal for outstanding performance on the CPA examination while he was working with Ernst and Whinney (now Ernst and Young), where he worked both in the international audit and tax divisions. Mr Allen was awarded the Robert Beyer Bronze Medal for outstanding performance on the Certified Management Accounting (CMA) examination. Mr Allen earned the professional designation of Charter Financial Analyst (CFA) while serving as a buy-side portfolio manager and then the chief investment officer for the endowment fund of Rhodes College. He is a certified in the Global Association of Risk Professionals (GARP) and the Professional Risk Management International Association (PRMIA). Most recently, he has participated in the CFA’s newly-designated Certificate in Investment Performance Management (CIPM).
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.