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Asset & Liability Management Workshop

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Asset & Liability Management Workshop, (Two Days)

This workshop is an introduction asset liability management. It explains what a bank balance sheet looks like, the risks it contains and how those risks are reported and managed. There is emphasis on:

  • Interest rate risk and gap reporting
  • Liquidity risk and the new regulatory regime

The course is designed for staff in finance and risk, particularly those who are newly qualified and need a practical understanding of this topic. Prior knowledge of risk management is not required.

Practical case study exercises will be used in order to explain the points under discussion. The recommended maximum number for this course is 12.

Day One

Introduction

  • A "typical" bank balance sheet
  • The risks incurred
  • How banks make and lose money
  • The importance of managing the balance sheet
  • How we set risk limits
  • The UK regulatory framework

Interest rate risk

  • What interest rate risk is
  • How it affects valuations
  • How it affects earnings
  • Reporting profits and losses & IAS 39

Static gap reporting

  • How deals appear in a gap report, (cash & derivatives)
  • What gap reports tell us about risk
  • How interest rate risk is hedged and what happens to the interest rate gap
  • Interest rate sensitivity of the gap - simple delta values
  • Prepayment and optionality risks
  • Selected ALCO report
  • Summary strengths & weaknesses

Dynamic gap reporting

  • The planning process
  • Projecting the balance sheet forward
  • Modeling future interest rate risk
  • Selected ALCO report

Additional risk reporting used by banks

  • Simulation
  • Stress testing

Basis risk

  • What it is and why the FSA is concerned
  • Libor/Base rate mismatches
  • Cost or benefit
  • Measuring and quantifying basis risk
  • Selected ALCO report

Day Two

Foreign exchange risk

  • What it is and how it can arise
  • How we measure this risk and use limits to manage it
  • Selected ALCO report

Bank capital

  • The purpose of capital and what forms it can take
  • The link between capital, leverage, profit and risk
  • How capital requirements are measured through the ICAAP process

Liquidity risk

  • Background: why liquidity risk receives so much attention
  • Defining liquidity risk: more than just meeting cash flows when due
  • The regulatory response: Policy Statement 09/16

The causes of liquidity risk

  • Identifying the main drivers of liquidity risk
  • Wholesale
  • Retail
  • Pipeline & contingency calls
  • Collateral management

Contractual reporting

  • Business as usual
  • Selected ALCO report

Stress testing

  • Firm & market stresses
  • Severity, duration, risk appetite
  • Behavioural risks
  • Selected ALCO report

Contingency funding plans

The buffer

  • What qualifies, quantity & cost

Funding diversification

  • The role of securitisation
  • Covered bonds

End of workshop & review

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