The Bank Asset Liability Management (ALM) Crash course starts off with a review of core concepts and quickly delves into core tools including Gaps, NII, Earnings at Risk and Cost to close reports. In addition to the traditional mismatch focus, the course also includes a short section on Liquidity Management as well as a related concepts section with relevant equations and ALM formulae. A detailed step by step case study on implementing ALM report formats in a banking context is also included.
Three new additions to this section include the ALM assumptions, tweaks and hacks post, the kill a bank in one day simulation and trade weighted liquidity stress testing. The Asset liability management assumptions, tweaks and hacks post is a must read if you are looking to catch up on terminology and usage. The kill a bank in one day simulation walks through the many ways asset liability mismatch can drive a bank onto the path of insolvency. Traded weighted liquidity stress testing introduces the concept of adjusting trading positions based on average trading volumes for the same positions. All three post provide a link to actual ALM practice in the banking industry and would help lay the groundwork for the sections that follow.
- Asset Liability Management – Introducing ALM to board members
- Why does bank regulation fail? The Kill a bank in one day simulation
- Asset Liability Management – Assumptions, Convention, Tweaks & Hacks
- Liquidity Stress Testing
We continue with an application orientation and review of ALM concepts. Written for executive management teams and board members the material works through asset liability management applications, challenges and choices. A short review of basic calculations behind ALM is also included. Why ALM reviews primary usage, A visual history reviews the interest rate environment experienced over the last thirty years. ALM strategies walk through the interest rate mismatch choices ALM models are supposed to help boards with. NII and economic value compares the bias that exists towards NII versus MVE that exists in ALM analysis. ALM strategy review builds up on the foundation laid in the earlier ALM posts and brings gaps into the picture.
- Why Asset Liability Management (ALM)?
- A visual history of yield curve shifts – 1978 – 2014
- Default ALM strategies for default interest rate scenarios
- ALM Strategy – The Earnings versus Value debate
- ALM Cheat sheet – NII, Gaps, Asset & Liability sensitivity
- Duration and Convexity calculator for US Treasuries
- Liquidity Gap – Implementation challenges.
- ALM Glossary of terms
A short guide to Asset Liability Management reporting templates and conventions including a review of building Maturity and Liquidity gaps. Now that we have done the high level groundwork it is now time to get our hands really dirty. We review report formats, templates and calculations. While the earlier sections worked with a board level review, posts in this section focus on building reports and models by using a section by section review.
- Interest Rate Risk: Duration, Macaulay Duration and Modified Duration
- Interest Rate Risk: Convexity approximation
- Asset Liability Management – Rate Sensitive Gaps, Earnings at Risk, Cost to Close and MVE Analysis
- Asset Liability Management (ALM): Measuring Liquidity Risk: Cost-to-Close Liquidity Gap
- Asset Liability Management – Other ALM Tools and Applications
- Master Course: Liquidity Management: Liquidity Risk
- Master Course: Liquidity Management Crash Course: Liquidity Limits
- Master Course: Liquidity Management: Liquidity Contingency Funding Plan
An inventory of related posts and materials that you would find of interest. In addition to value at risk, take a look at the zero and forward rate case study, the Monte Carlo Simulation how to reference, the advance risk management workshop and the building maturity profile for IAS 30 reporting posts.
- Master Class: Calculating Value at Risk (VaR): Course Guide
- Duration, Convexity and Asset Liability Management – Calculation reference
- Bootstrapping Zero and Forward Interest Rate Curves in Excel
- Asset Liability Management (ALM) Case Study – Step by Step Guide to ALM Reports
- Value at Risk – Methods & Metrics
- Calculating Conditional Value at Risk
- Senator Warren, Matt Taibbi, Michael Lewis and Bank Regulators
- Monte Carlo – How to reference
- What is Risk?
- Advance Risk Management Workshop – Portfolio Optimization & Greeks
- Pricing Interest Rate Swaps – MTM & Valuation Course
- Building Maturity Profiles for Bank Advances & Deposits for ALM, ICAAP & IAS 30 Reporting