Euromoney Audit Training

For every financial institution in the world today, the need for sophisticated asset liability management (ALM) has become imperative.

Volatile global markets, proliferation of new financial products and changing regulatory environments have made asset liability management an increasingly challenging task for banks, fund managers, hedge funds and other institutions.

Furthermore, the impact of the changing regulatory environment is presenting new challenges in capital sourcing and allocation.

 

This 4-day intermediate-level program is designed to give ALM and treasury professionals hands-on expertise for immediate implementation.

Covering strategic, technical, and operational aspects of ALM, including:

• Current best practices in ALM techniques for various types of financial institution
• 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 organization and information packages

 

The programme begins by reviewing strategic and tactical considerations in traditional ALM frameworks and extends this analysis to include credit activities, alternative investments, derivatives applications, consumer liability products, structured financing, and capital strategies.

The programme includes optional late-afternoon sessions on each of the first three days to explore specialised issues in ALM for delegates from different backgrounds and institutions, including:

1. strategic designs of consumer financial products,
2. risks in alternative investment portfolios, and
3. liability-driven and immunisation strategies in ALM.

The programme makes extensive use of short problems, case studies, Excel exercises, and Bloomberg information. Delegates should have a basic understanding of financial markets and products.

Day 1

ALM introduction and overview

• The roles of ALM in various financial institutions
• 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

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

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

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

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
• Teams work: short 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 in risk – return analyses
• Expected and unexpected credit losses
• Credit 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 versus risk-neutral default probabilities
• Estimating Credit Value at Risk 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 securitized CDO/CLOs as ALM tools
• CDS and cash/hybrid CDO/CLO product strategies in ALM portfolio management
• Teams work: short exercises and case studies

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 value-at-risk
• Operational risk transfer techniques
• 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 versus 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
• The regulatory environment for financial institutions
• Summary of Basil II and Basel III impacts on credit, market, and operations risk management
• The impacts of Basil 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

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.

  Courses run by this instructor

  • Advanced Treasury Management - Paris
  • Advanced Derivatives: Applications, Pricing and Hedging - Prague

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.

Modelling Treasury Books - Advanced Risk Management - Paris

27-29 Feb 2012 (Paris, France)
25-27 Sep 2012 (Paris, France)

This 3-day course provides participants insight on most advanced models for hedging customer behavioural risks inherent in treasury banking books. Participants will develop optimal solutions specific to their own institutions and learn about best ways to back test their results.

Advanced Treasury Management - Paris

25-28 Jun 2012 (Paris, France)
27-30 Nov 2012 (Paris, France)

This is an intensive 4-day course providing comprehensive coverage of the strategic and tactical aspects of treasury management. The course seeks to build not only market and financial skills, but also management strategic skills in order to prepare delegates to assume senior treasury roles in their institutions.

Asset-Liability Management - Istanbul

10-12 Dec 2012 (Istanbul, Turkey)

A 4-day course teaching delegates the strategic, technical, and operational aspects of Asset-Liability Management (ALM)