FTP Workshops, Q4 2018: Miami & Santiago

Announcing the following FTP Workshops for Q4 2018:

Now that interest are finally moving up, many banks are finding that their processes for computing and forecasting product- and business segment-level profitability are producing more noise than signal.  Despite many years of relative margin stability, FTP methodologies which do not properly hedge interest and liquidity risk in loans and deposits are suddenly making it extremely difficult to manage earnings.  Furthermore, improperly constructed FTP methodologies create unnecessary and unproductive tension between Treasury and the business units when mutual support and collaboration is required more than ever.  Sound familiar?  If so, then this workshop is for you!

Please join me for an exciting 2-day session where we explore the purpose and practice of FTP.  We will discuss the use of FTP to identity, price and transfer interest rate risk and liquidity risk from the lending and deposit gathering business units to a central mismatch center, and we will explain how to develop a funding curve which reflects contemporaneous hedging costs (it has economic integrity) as well as the meaning of the earnings in the mismatch center (they are not an arbitrary tax on business unit earnings!).

We will also address the unique challenge of modeling NMDs, and we specifically acknowledge the behavioral inflection point where excess liquidity evaporates.  I am excited to present my NMD model which has an embedded FTP engine that is designed to ensure that the treatment of deposits is consistent in all risk AND profitability management exercises.  Most importantly, the FTP methodology within the NMD Model has been specifically designed to produce FTP spread stability when deposit providers actually deliver deposits with the behavioral characteristics they have promised.  (If you can’t say this about your approach to managing NMDs, then you must acknowledge there there is no way to hold the deposit gatherers accountable for the quality of the deposits they deliver.)  Imagine how accountability and incentive compatibility compel activities that are actually good for the bank; risk and profitability management exercises take on a whole new meaning when rewards and punishments are not arbitrary, especially when interest rates are moving up!

Come see why my clients have come to believe that FTP is the most overlooked and under-appreciated business management process in banking.  Regardless of size or charter type, FTP is mandatory if you want to explain the level and volatility of earnings at any level of granularity.

I will also share numerous lessons I have learned in almost 25 years of working with banks, credit unions and their regulators from around the globe.  Don’t miss this opportunity to learn how to dramatically improve the story of how your depository institution makes money!

For more information about the workshop, see Funds Transfer Pricing: The Key to Effective Risk and Profitability Management.

Delegate testimonials can be found here and if you have any questions, please feel free to send me a message.

I hope to see you soon.

ALM Workshops, Q4 2018: San Francisco & London

Announcing the following ALM Workshops for Q4 2018:

  • San Francisco, September 6-7
  • London, October 3-4

With interest rates moving higher in many countries for the first time in a decade, its been quite some time since banks have given much thought to interest rate risk.  With excess liquidity quickly drying up as well, liquidity risk is also back on the radar screen.

Please join me for an exciting 2-day session where we explore the history and current challenges of asset/liability management.  Given that risk and profitability management must be addressed simultaneously, we will discuss the use of FTP to identity, price and transfer interest rate risk and liquidity risk from the lending and deposit gathering business units to a central mismatch center.  We will also discuss the modeling of non-maturity deposits and considerations for quantifying and managing behaviors in a tight liquidity market.

I will share numerous lessons I have learned in almost 25 years of working with banks, credit unions and their regulators from around the globe.  Don’t miss this opportunity to make sure that you are ready for rising rates!

For more information about the workshop, see Asset Liability Management: Moving Beyond the Model.

Delegate testimonials can be found here and if you have any questions, please feel free to send me a message.  If you have attended one of my workshops in the past, your comments and testimonials are always appreciated.

I hope to see you soon.

NMD Workshops, Q4, 2018: Bogota & New York

Announcing the following NMD Workshops for Q4 2018:

  • Bogota, November 8-9
  • New York, November 28-29

As we move from a period of excess liquidity to an environment where depository institutions are competing aggressively for funds, many firms are finding that their historically-based assumptions and third-party deposit studies have misled them about the value and price-sensitivity of their deposits.  IRR and LR models which rely upon these assumptions have correspondingly understated the risk to rising interest rates.  This trend will only be further exacerbated as banks attempt to expand their balance sheets faster than the growth rate of the available deposit base.

Please join me for an exciting 2-day session where we explore the challenge of modeling NMDs.  Following a detailed review of risk and profitability management contexts, I will give an extensive presentation of my stand-alone NMD Model.  In addition to the standard re-pricing and liquidity cash flow schedules required for IRR and LR management (which are derived from my dynamic methodology for computing stable and non-stable balances), the model has its own FTP engine to ensure that the treatment of NMDs is consistent across all risk AND profitability management exercises; it produces FTP rates for the entire data time series, including any forecast horizon.  The economic logic and transparency of the calculations facilitates the understanding of the absolute and relative value of different deposit products.  Most importantly, the FTP methodology within the NMD Model has been specifically designed to produce FTP spread stability when deposit providers actually deliver deposits with the behavioral characteristics that have been agreed upon.  (If you can’t say this about your approach to modeling NMDs, I am curious as to how you speak to the relative pros and cons of various product and performance strategies?)  Imagine the beauty and benefits of accountability and incentive compatibility; risk and profitability management exercises take on a whole new meaning when rewards and punishments are not arbitrary, especially when interest rates are moving up!  I will also demonstrate the monitoring and back-testing capabilities of the NMD Model which are an essential component of an effective governance process.

I will share numerous lessons I have learned in almost 25 years of working with banks, credit unions and their regulators from around the globe.  Don’t miss this opportunity to see a very compelling approach to deposit modeling!

For more information about the workshop, see Non-Maturity Deposit Modeling: Balance Sheet Management Considerations.  Also check out several supporting white papers I have published on the subject.

Delegate testimonials can be found here and if you have any questions, please feel free to send me a message.    If you have attended one of my workshops in the past, your comments and testimonials are always appreciated.

I hope to see you soon.

NMD Workshop – Atlanta – July 2018

I want to thank everyone who attended my NMD workshop in Atlanta which was organized by Marcus Evans – I think it was the best session yet on the subject!  (See the testimonial from Elliot Reis , ALM Manager at Alliant Credit Union.)  ALM and FTP managers, model risk managers and auditors representing several banks and credit unions from across the country participated in the 2-day event.  Following an extensive review of ALM, FTP and strategic balance sheet management (contexts to which deposit model output speaks and contexts with which many young bankers are unfamiliar), I demonstrated my approach to NMD modeling; in addition to strong quantitative elements, model calibrations are informed by almost 25 years of risk and profitability management experience.

In addition to a comprehensive analysis of the drivers of re-pricing and liquidity cash flow dynamics, the NMD Model has its own fully-integrated FTP rate calculator.  With the ability to generate FTP rates and spreads which span the entire historical study period as well as multiple pro forma scenarios, the NMD Model output enables institutions to align the treatment of NMDs in both risk AND profitability management domains.  With interest rates steadily increasing, it is vital that the product and business segment managers think about the absolute and relative value of deposits in a way that is consistent with their treatment in risk management exercises; without a well-designed FTP methodology, this is simply not possible.  Despite this, deposit-related performance incentives at most institutions continue to be purely volume-based, ignoring the fact that VOLUME and VALUE are not the same thing!

Most US banks, if they have not already passed it, are quickly approaching the inflection point where the apparent stickiness and lack of rate sensitivity of their deposits will prove to be ephemeral.  Unfortunately, the post-crisis emphasis on purely quantitative approaches to behavioral modeling has a strong tendency to produce backward-looking measures of risk and profitability, blinding many institutions to the inevitable shift in behaviors that occurs when excess market liquidity gets fully consumed.  Beyond this inflection point, despite several years of outperforming, balance sheet strategies that are predicated on above-average rates of loan growth will inevitably disappoint given the short supply of low-cost, sticky deposits as well as the bruising competition from the largest national players.  If institutions are not careful, subsequent efforts to raise much-needed deposits will only attract hot-money and potentially cannibalize existing deposits.  These strategic considerations must be factored into the behavioral assumptions because the risk and profitability management exercises to which they speak are, in fact, forward-looking.

For more information about DGA’s approach to deposit modeling, see www.nmdmodel.com.

Above, after throwing out challenge after challenge, Harry John, Ph.D. from Alliant Credit Union has a moment of epiphany when he finally sees the beauty of the matched-maturity FTP formulas for NMDs.