Asset & Liability Management

Euromoney Learning Solutions

How long?

  • 3 days
  • in person

What are the topics?

Euromoney Learning Solutions


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Who should attend

  • Group Treasurers
  • Chief Risk Officers
  • Accounting and Finance Managers
  • Asset Managers
  • Liquidity Managers
  • Risk Managers and Risk Controllers
  • Risk Officers
  • Auditors and Bank Regulators

About the course

Post the global financial crisis, optimal Asset and Liability Management within a bank is more challenging than ever. The regulation that followed the crisis, in particular Basel III, has meant that optimisation of assets and liabilities is vital in mitigating the ‘hit’ on Return on Equity that the regulation represents.

The Asset & Liability Management programme will allow the participant to explore what, within the industry, is considered best practice of an ALM function and moreover via real life case studies and excel based simulations explain how the function looks to optimise balance sheet performance via the more selective deployment of balance sheet resources. In addition it will explore the fluid regulatory landscape in which ALM is functioning and outline what the industry considers as best practice in terms of dealing with the challenges that landscape presents.

By attending the day workshop, delegates will be better equipped to work in or with the ALM function and support the optimisation of the balance sheet they are tasked to achieve.

Learning outcomes:

  • Explain the impact of the regulation on bank’s balance sheet in particular the resources of capital and liquidity and appreciate how the industry is looking to mitigate this impact
  • Understand how the application of Internal Methods have generated capital benefits for banks, how ‘Basel IV’ is limiting the extent of these benefits
  • Appreciate the impact of IFRS9 impairment charges on balance sheets and how banks are looking to potentially mitigate
  • Assess Interest Rate Risk in the Banking Book in line with BIS 368 Standards and have greater awareness of best practice for managing it
  • Better mitigate impact of Liquidity Coverage Ratio and Net Stable Funding Ratio
  • Apply best practice to their own Individual Adequacy Assessment Processes for Capital and Liquidity and better harmonise these
  • Identify ways in which the wider business can support the ALM function in dealing with these challenges via, for example, communication and alignment of business incentivisation
  • Derive and apply maturity Funds Transfer Pricing [FTP] curves, adjust for regulatory impact on liquidity and capital and have awareness of the ongoing evolution of FTP methodologies in the industry
  • Better optimise non-wholesale liquidity portfolios


Day 1

Session 1: Linking Asset and Liability Optimisation to Return on Equity

  • Responsibilities and best practice of Asset and Liability Committee [ALCO]
  • Impact of Basel III on Capital
  • The risk constraint ratio
  • The leverage ratio
  • Recap on the Standardised Methodology for Credit Risk
  • Credit Conversion Factors
  • Adjusting for Collateral
  • Gearing - Linking asset and liability pricing to returns on capital
  • So what does this mean for ALM and ultimately strategy?

Activity: Analyse the impact of Basel III Capital Regime on the RoE generated from a simulated balance sheet, consider the merits of asset lead versus liability lead strategies to mitigate these impacts and discuss best practice of how banks are adapting their strategies to achieve this/what success is dependent upon.

Session 2: Optimising Assets - Internal Rating Based (IRB) approach for Credit Risk

  • Incentives for adopting IRB – more complexity less capital
  • Foundation IRB (FIRB) compared to Advanced IRB (AIRB)
  • Constructing the IRB equation for wholesale
  • Constructing the IRB equation for retail
  • Adjusting IRB for calculation of Economic Capital

Activity: Construct the FIRB model and use it to calculate capital requirements for a portfolio and compare this to that required under the standardised methodology

Session 3: Linking Accounting and Prudential Regulation – Overview of IFRS9

  • Overview of IFRS 9 – what’s new?
  • Linking IFRS 9 to Asset Performance and Capital
  • The drivers of rising impairment under IFRS 9
  • Further considerations

Activity: Model the impact of IFRS9 impairment on a balance sheet which uses Standardised Approach and compare it when applied on a contractual and behavioural basis

Session 4: Asset and Liability Gap Analysis

  • Challenges of Maturity Transformation
  • Selecting appropriate time buckets
  • Distribution of maturing and non-maturing assets and liabilities
  • Introduction to behavioural modelling
  • Adjusting for prepayment and redemption

Activity: Construct a gap analysis post behavioural analysis of non-maturing liabilities and contingent facilities

Day 2

Interest Rate and Liquidity Risk

Session 1: Non-Traded Market Risk - Overview of IRRBB

  • What is IRRBB and what are the sources of it
  • Comparing IRRBB to CSRBB
  • Measuring IRRBB
  • Economic Value of Equity [EVE} vs Earnings at Risk [EAR]
  • PV01 and DV01
  • Review of BIS 368 ‘Final’ Standards for IRRBB
  • Treatment of cash flows
  • Time bucketing of cash flows
  • Discounting of cash flows
  • Stressing of cash flows
  • Best practice in Structural Hedging
  • What to hedge
  • When to hedge
  • How much to hedge
  • Governance and review– keeping the structural hedge appropriate

Activity: Calculate maximum fall in EVE resulting from the application of BIS 368 Stress Tests to a balance sheet

Session 2: Measures of Liquidity Risk

  • Distinguishing between Liquidity and Funding Risk
  • Basic framework of the liquidity statement
  • Liquidity Ratio
  • 1 Week and 1 Month Liquidity Ratios
  • Cumulative Liquidity Model
  • Liquidity Risk Factor
  • Concentration Report and Inter-Entity Lending Report
  • Limitations of the traditional measures

Activity: Discussion – weaknesses in liquidity risk management identified in the Global Financial Crisis and the rationale/motivation of the Basel Committee for the introduction of Sound Principles for Liquidity Risk Management and Supervision and the Basel III Liquidity Regime.

Session 3: Basel Liquidity Regime – Pillar I

  • Evolution of Liquidity Regulation
  • Basel III Liquidity Regime
  • Liquidity Coverage Ratio [LCR]
  • Net Stable Funding Ration [NSFR]
  • How they work in harmony
  • So what does this mean for ALM and ultimately strategy and liquidity preferences?

Activity: Calculate the LCR and NSFR for a balance sheet and consider market best practice for optimising the impact of compliance with these ratios.

Session 4: Basel Liquidity Regime - Beyond Pillar I

  • Overview of the Individual Capital Adequacy Assessment Process [ICAAP]
  • Overview of the Individual Liquidity Adequacy Assessment Process [ILAAP]
  • What stress is appropriate – what qualifies as ‘severe but plausible’
  • Harmonising ICAAP and ILAAP
  • Effective Recovery and Resolution Planning [RRP]

Activity: Consider a case study detailing how several banks are harmonising Individual Adequacy Assessment Processes for Capital and Liquidity [ICAAP+ILAAP=ICLAAP] and discuss the applicability of these to their individual institutions.

Day 3

Funds Transfer Pricing [FTP]

Session 1: Defining and Deriving the FTP Curve

  • Defining FTP
  • What is it?
  • Why have it?
  • Why is it essential in optimizing portfolios?
  • Evolution of FTP methodologies
  • Deriving the FTP Curve - Market sources and proxies
  • Challenges of deriving the curve in an under developed wholesale environment
  • Use of basis and cross currency swaps
  • Ownership and governance

Activity: Derive a maturity matched FTP curve and discuss best practice for achieving this in an under developed wholesale market environment.

Session 2: Operating FTP

  • ‘Behaviouralising’ Portfolios
  • Methodologies
  • Ownership and governance
  • Including in management reporting – stock/flow rate blending
  • Driving behaviours
  • Aligning business incentivisation
  • Tools/Products to optimise
  • Distributing the cost of unwind

Activity: Derive a maturity matched FTP curve and discuss best practice for achieving this in an under developed wholesale market environment.

Session 3: Pricing with FTP

  • Pricing flow business
  • Pricing ‘cushions’/buffers
  • Reflecting regulation in FTP e.g. impact of LCR
  • Trends and trajectories in FTP methodologies – inclusion of capital in a a FTP mechanism

Activity: A maturity matched FTP curve adjusted for LCR and Capital charges will be derived and then applied to a balance sheet. Best practice for achieving this, based on how FTP methodologies of several banks are evolving to reflect these adjustments will then be discussed.

Session 4: Optimising Deposits Portfolios

  • Best practice in managing non-wholesale portfolios
  • Segmenting the portfolio – identifying what to grow, migrate or exit
  • How banks are adapting products/strategies to support optimisation
  • Tools and communications to achieve optimisation
  • Detune and migration strategies – calculating the ‘relasticity’

Activity: The impact of several de-tune/migration strategies applied to a mixed deposits portfolio shall be assessed. How a European bank overcame challenges to successfully deliver these strategies shall be discussed.


Gareth Vance

Gareth’s banking career spans more than two decades.From 2010 to 2014 he was Head of Barclays Corporates £110 billion liquidity portfolio, tasked with the end-end ownership of pricing and structuring of the portfolio and ensuring that margins were achieved whilst delivering funding ambitions and ...

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Asset & Liability Management at Euromoney Learning Solutions

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