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?

Exercise:

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.

Exercise:

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.

Exercise:

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 behavioral modeling.
• Adjusting for prepayment and redemption.

Exercise:

Construct a gap analysis post behavioral analysis of non-maturing liabilities and contingent facilities.

DAY 2 – INTEREST RATE AND LIQUIDITY RISK

Session 5 – 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, Time Bucketing, Discounting & Stressing of Cash Flows.
• Best practice in Structural Hedging – What, When & How much to Hedge.
• Governance and review– keeping the structural hedge appropriate.

Exercise:

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

Session 6 – Measures of Liquidity Risk

• Distinguishing between Liquidity and Funding Risk.
• The 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.

Exercise:

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 7 – 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?.

Exercise:

Calculate the LCR and NSFR for a balance sheet and consider market best practices for optimizing the impact of compliance with these ratios.

Session 8 – 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’.
• Harmonizing ICAAP and ILAAP.
• Effective Recovery and Resolution Planning [RRP].

Exercise:

Consider a case study detailing what several banks how several banks are harmonizing 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 9 – Defining and Deriving the FTP Curve

• Defining FTP – What is it? Why has 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 underdeveloped wholesale environment.
• Use of basis and cross-currency swaps.
• Ownership and governance.

Exercise:

Derive a maturity matched FTP curve and discuss best practices for achieving this in an underdeveloped wholesale market environment.

Session 10 – Operating FTP

• ‘Behaviouralising’ Portfolios – Methodologies, Ownership & Governance.
• Including in management reporting – stock/flow rate blending.
• Driving behaviors – Aligning business incentivization, Tools/Products to optimize.
• Distributing the cost of unwinding.

Exercise:

Derive a maturity matched FTP curve and discuss best practices for achieving this in an underdeveloped wholesale market environment.

Session 11 – 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 FTP mechanism.

Exercise:

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 12 – 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 optimization.
• Tools and communications to achieve optimization.
• Detune and migration strategies – calculating the ‘re-elasticity’.

Exercise:

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.

End of Programme

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The venue of the training is always in a centrally located 4-5 star hotel. The venue is confirmed 2 weeks before the programme once registration is closed and we know the exact number of delegates attending. We have exclusive rates with the hotel, if you require accommodation during the programme.