Asset & Liability Management

Euromoney Learning Solutions

How long?

  • 4 days
  • online

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

During these challenging times, 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.

This highly interactive workshop, will combine virtual classrooms and discussions with ‘screen off’ individual activity to ensure interactivity and engagement.

It will leverage the trainers extensive experience and that of fellow delegates/industry peers to explore what, within the industry, is considered best practice of an ALM function. 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 benefit better equipped to work in or with the ALM function and support the optimisation of the balance sheet they are tasked to achieve.

Agenda

Day One

Virtual Class: Linking Asset and Liability Optimisation to Return on Equity

  • Impact of Basel III on the balance sheet
  • Recap on the Standardised Methodology for Credit Risk
    • Credit Conversion Factors
    • Adjusting for Collateral
  • Overview of Internal Rating Based Approach [IRB]
    • Wholesale IRB model
    • Retail IRB Model
  • Potential Capital Optimisation
  • Overview of the final revisions to Basel III aka Basel IV
  • Gearing - Linking asset and liability pricing to returns on capital
  • So what does this mean for ALM and ultimately strategy?

Group Exercise: Balance Sheet Optimisation

  • Delegates will be split into virtual rooms and asked to share best practice and consider a case study focused on the he impact of Basel III Capital Regime on the RoE generated from a simulated balance sheet.
  • They will discuss 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.

Virtual Class: Feedback on case study

  • Solution to the case study will be shared and discussed
  • What other factors, both quantitative and qualitative, are likely to be considered will also be explored

The impact 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

Group Exercise: Modelling the impact of IFRS 9

  • Delegates will be split asked to model the impact of IFRS9 impairment on a balance sheet and discuss best practice in managing it

Virtual Class: Feedback on case study

  • Solution to the case study will be shared and discussed. A comparison of modelling Expected Credit Losses to behavioural life as opposed to contractual life shall be considered

Virtual Class: Asset and Liability Gap Analysis

  • Challenges of Maturity Transformation
  • What does a Gap Analysis tell us - distinguishing between the different types of risks
    • What is liquidity risk?
    • What is funding risk?
    • What is interest rate risk?
  • Evolving from Static to Dynamic Gap Analysis – the importance of it
  • What to consider in dynamic gap analysis
    • External Drivers - commercial and macro-economic factors
    • Internal Drivers - asset vs liability strategy
    • Crucially! - Interest rates
  • Distribution of maturing and non-maturing deposits [NMD’S]
  • Potential Stresses
    • Impact of interest rates shocks
    • Impact of market factors e.g. oil price shocks
    • Impact of other factors e.g. digitalisation

Group Exercise: Construct Gap Analysis

  • Delegates will be split into virtual rooms and asked construct a gap analysis post behavioural analysis of non-maturing liabilities and contingent facilities Activity: For the previous constructed gap analysis calculate the MCO and consider the impact of several stresses.

Virtual Class: Feedback on case study

  • Solution to the case study will be shared and discussed and challenges in arriving at the appropriate behavioural analysis explored.

Day Two

Virtual Class: Overview of IRRBB

  • The sources of IRRBB and how is it measured
  • Why is IRRBB so ‘in focus’ currently
  • Overview of BIS 368 ‘Final’ Standards for IRRBB
    • What’s changed
    • Why the change?
  • Measuring Earning at Risk [EaR]
    • Assessing change in cumulative Net Interest Income [NII]
    • Refresher on PV01 and DV01
    • Structural hedging EaR with swaps
    • Fixed vs fixed or float vs float?
  • Challenges of convexity/optionallity in the banking book and how to mitigate
  • What do the standards say?

Group Exercise: Calculating EaR

  • Delegates will be asked assess the impact of interest rates changes on loan prepayment rates and deposit redemption rates for a banking book, by extension the impact on Earnings at Risk and discuss an appropriate structural hedging program in light of these.

Virtual Class: Feedback on case study

  • Solution to the case study will be shared and discussed

Virtual Class: Measuring Earnings at Risk [EaR]

  • Assessing change in cumulative Net Interest Income [NII]
  • Refresher on PV01 and DV01
  • Structural hedging EaR with swaps
  • Fixed vs fixed or float vs float?
  • Challenges of convexity and how to mitigate
  • Impact of change in loan prepayment rates from interest rate changes
  • Impact of change in deposit redemption rates from interest rate changes
  • What do the standards say?

Virtual Class: Measuring change in Economic Value of Equity [EVE]

  • EVE defined
  • Time bucketing of cashflows:
  • What is a re-pricing?
  • What to include what not to include?
  • Why are fixed instrument cashflows EVE sensitive but floating instrument cashflows virtually insensitive?
  • Calculating change in EVE
  • Challenges of convexity/optionality in the banking book and how to mitigate
  • What do the standards say?

Group Exercise: Evaluating EVE

  • Delegates will be split into virtual rooms and asked to calculate the change in EVE resulting from a parallel shock in the yield curve and consider how this would be affected as result of changes in loan repayment and deposit redemption rates.

Virtual Class: Feedback on case study

  • Solution to the case study will be shared and discussed

Going beyond Parallel Shocks

  • Measuring the BIS 368 shocks
    • Parallel shock up and down
    • Short rate shock up and down
    • Curve flattener and steepener
  • Quantum of the shocks by currency
  • How to discount future cashflows – continuous compounding treatment
  • Exponential scaling of short rate shocks and long rate shocks
  • Combining short and long rate shocks for curve flatteners and steepener
  • So what?
    • Setting limits for IRRBB
    • Regulatory limits vs internal limits
  • Integrating into the ICAAP [Pillar II]
  • What to report and when [Pillar III]

Demo: Modelling 6 IRRBB Stresses

  • A detailed model of the 6 IRRBB shocks shall be shared and considered, including exponential scaling of short rate shocks, curve flattener and curve steepener.

Day Three

Liquidity Coverage Ratio [LCR]

  • Distinguishing between Liquidity and Funding Risk
  • Evolution of Liquidity Regulation
  • Overview of Basel III Liquidity Regime
  • LCR in detail:
    • What qualifies as High Quality Liquid Assets [HQLA]
    • Outflows from deposits
    • Outflows from undrawn contingent commitments
    • Inflows from loans/maturing Securities Financing Transactions
  • Strategies to optimise
  • Numerator vs denominator lead strategies
  • Operational considerations
  • So what does this mean for ALM and ultimately strategy and liquidity preferences?

Group Exercise: Calculating LCR

  • Delegates will be split into virtual rooms, asked to calculate LCR from a simulated balance sheet and discuss best practice for complying with the regulation optimally.

Virtual Class: Feedback on case study

  • Solution to the case study will be shared and discussed

Virtual Class: Net Stable Funding Ratio [NSFR] and beyond Pillar I

  • NSFR in detail:
    • What qualifies as Available Stable Funding [ASF]
    • Calculating Required Stable Funding [RSF]
  • Strategies to optimise
  • Numerator vs denominator lead strategies
  • Operational considerations
  • So what does this mean for ALM and ultimately strategy and funding preferences?

Group Exercise: Calculating NSFR

  • Delegates will be split into virtual rooms, asked to calculate NSFR from a simulated balance sheet and discuss best practice for complying with the regulation optimally.

Virtual Class: Feedback on case study

  • Solution to the case study will be shared and discussed

Virtual Class: Beyond Pillar I

  • LCR and NSFR are the starting point not the end – their limitations
  • Further measures of Liquidity and Finding Risk
    • Maximum Cumulative Outflow [MCO]
    • Survival Days
    • Loan/Deposit Ratio
    • Concentration factors
  • How much liquidity does a bank need? – why the Pillar 2 assessment is so important
  • Overview of the ICAAP Liquidity Risk Assessment/ILAAP – what does a ‘good’ one look like
  • What to expect from the Supervisory Review and Evaluation Process [SREP]
  • Linking to the Contingency Funding Plan.

Group Exercise: Calculating MCO And Survival Days

  • Delegates will be asked to calculate MCO and survival days against several stresses for a simulated balance sheet

Virtual Class: Feedback on case study

  • Solution to the case study will be shared and ‘so what’ in terms of liquidity risk discussed.

Day Four

The vital role of FTP and deriving a maturity matched 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

Group Exercise: Constructing a maturity matched FTP curve

  • Delegates will be asked to derive a maturity matched FTP curve and discuss challenges/best practices in achieving this in their own markets.

Virtual Class: Feedback on case study

  • Solution to the case study will be shared and discussed

Virtual Class: 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’

Group Exercise: Detuning the book

  • Delegates will be assess the impact of several de-tune strategies on RoE for a simulated balance sheet

Virtual Class: Feedback on case study

  • Solution to the case study will be shared and the challenges involved with executing them, based on the trainers own experience will be discussed.

Virtual Class: Not so distant future challenges

  • Future Challenges
  • Basel IV
  • MREL
  • IBOR Transition
  • Remember when zero was a low yield?!?
  • 4 days in 20 minutes – key points and takeaways.
  • Closing comments and wrap up

Experts

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 ...

Videos and materials

Asset & Liability Management at Euromoney Learning Solutions

From  GBP 2 595$2,995
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