Course Agenda
Day One
ALM Introduction and Overview
● The evolving role of ALM in financial institutions
● ALM role as a bank within the bank
● ALM as a business unit
● Maturity transformation as a main source
of earnings
● ALM - Zero sum game
● Creation and categorization of assets and liabilities
in the banking book
● Why is it important to transfer risks to ALM?
● Development of ALM in the future
IRRBB measurement, management and strategies
● Re-ricing Gap analysis as an important tool for the
understanding of the IRRBB position
of a bank
● Measuring Net Interest Income (NII) risks with static
and dynamic sensitivity analysis
● Measuring Economic Value of Equity (EVE)
and its sensitivity
● Analysis of the interest rate shocks
● Analysis of the impact of the automatic options on
the EVE metric
● Re-investment and re-funding risks
Case study: calculation of the NII sensitivity and EVE
volatility under different interest rate scenarios
● Analysis of the basis risks
● Analysis of the Credit Spread Risk
in the banking book
● Discounting with commercial margin and without
external and internal view for IRRBB
● IRRBB stress testing and capital allocation
Case study: assessment of the basis risk through refixing
gap analysis
● Interest Rate positioning – decisions taken within
ALM
● Should we be able to increase risks to profit from
expected market conditions?
● Interest rate treatment of items without
deterministic maturity
● Structural hedging – margin compression
● Analysis of the IRRBB metrics
● VaR – calculation of interest rate risk in the
investment portfolio
Case study: analysis of the IRRBB metrics – is the IRRBB
well manged?
Basel Committee on Banking Supervision Standards and
European Banking Authority – detailed analysis of the
requirements for IRRBB
● IRRBB metrics and shock scenarios
● Treatment of automatic options
● Treatment of behavioural options
(CASA and prepayments)
● IRRBB governance
● Challenges with the BCBS 368 implementation
Day Two
What is Funds Transfer Pricing?
● Sum of policies and methodologies for the use and
generation of liquidity
● Robust model with different participants involved
● Maturity transformation as a main source
of earnings
● External pricing versus internal pricing
● Objectives of FTP
ALM role in the FTP framework
● Match Maturity Transfer Pricing
● Separating interest and liquidity component within
FTP
● Cost of contingent liquidity
● Why is it important to transfer risks to ALM?
Case study: calculation of Net Interest Margin
in business units and ALM
● Interest Rate positioning, extent of maturity
transformation and the optimal amount
of liquidity buffer – decisions taken within ALM
Case study: analysis of the ALM P&L components
Conclusions and Questions
● Measuring ALM economic performance
● Evolution of modelling requirements and the role of ALM
Case study: analysis of the ALM P&L components
Case study: hedging IRR - liquidity risk positions and FTP rate
Interest Transfer Pricing best practices
● Fixed rate products
● Floating rate products
● Prime rate products – basis risk
● Interest rate treatment of items without deterministic
maturity
Case study: calculation of FTP rate for current accounts
● Liquidity Transfer Pricing best practices
● Does the liquidity component matter?
● Case study: example of mortgage pricing
● Calculation and allocation of contingent liquidity cost
to short term assets based on LCR
● Treatment of behavioural options in FTP (prepayments
and liquidity treatment of items without deterministic
maturity)
FTP curve set up
● Short term FTP curve
● Medium long-term curve
● Balance sheet shaping through FTP curve: application
of management overlays and incentive premium
scheme
Case study: FTP curve set up in major banks
Case study: Balance sheet shaping through FTP
