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Finance Training Course – Course Outline – ICAAP Models: ALM & Interest Rate Simulations for ICAAP

This advanced ICAAP modules workshop focuses on issues related to modelling using Interest Rate simulations, Interest Rate Mismatch and Liquidity Risk for Internal Capital Adequacy Assessment.

Starting with a balance sheet model, we quickly introduce tools and traditional models including gap analysis and earnings at risk, stress testing, scenario planning, policy making and simulations, followed by structured analysis required for ICAAP submissions, reporting and recommendations.

1. COURSE OBJECTIVES

At the end of this workshop the participants will be able to:

  1. Understand the capital charge calculation basis for capturing Interest Rate Mismatch Risk for ICAAP.
  2. Work with the primary tools required to measure and manage ALM risk profile of a financial institution.
  3. Measure liquidity and quantify the effectiveness of traditional measurement tools.
  4. Use scenario based methods, stress testing and simulations to highlight ALM and liquidity risk profile for ICAAP.
  5. Develop assumptions for testing Maturity mismatch and liquidity risk for Internal Capital Adequacy Assessment.

2. TRAINING COURSE LEVEL

Intermediate and advance users.

3. TRAINING COURSE PREREQUISITES

Familiarity with basic liquidity concepts, local markets, portfolio management and the Basel II framework.

4. COURSE OUTLINE

Session & TitleTopics

Session 1 –
Liquidity and ALM Models

Overview and introduction.
Key terms and concepts.
The link between ALM and Liquidity.
Basic tools: Duration & Convexity
Basic Reports: Price and Maturity GAP, MVE and NPV analysis, Net Interest Income,
Earnings at risk, Cost to close and Liquidity.

Session 2 – Case Study A – CIR & ALM – Generating Rates and re-pricing productsBuilding a simple interest rate generator and linking it to the ALM model.
Revaluing loan book and collateral impairment.
Linking ALM inputs with model drivers.
Calibrating CIR for domestic interest rate data.
Session 3 – Introduction to Bank Simulation – ALM Case StudyThe BancOne Case.
Case review and discussion.
Lessons Learnt
Session 4 – Bank Simulation IContinuation of the ALM simulation with dynamic interest and credit environment.
Assessing effectiveness of target account.
Interpreting results and strategies.
Session 5 – Liquidity Management ILiquidity ratios.
Projecting liquidity needs by product. The enterprise liquidity projection.
Structure, Policies, Tools, Stress tests, ICAAP and Scenario analysis for Liquidity.
Building the contingency funding plan.
Session 6 – ICAAP ApplicationsBringing it together, ALM, liquidity & interest rate models for ICAAP.

 

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