Seasoned Perspectives on the Past and Future of ALM
I am honored to have participated in Risk’s ALM Conference in Toronto at the end of May. Along with several experienced ALM managers, FTP managers and consultants (June Wang, Karl Rubach, Hovik Tumasyan, Randy Ahluwalia, and Alex Shipilov), delegates were entertained with intense discussions around the evolution of bank risk and profitability management.
There was considerable agreement that interest rate risk and liquidity risk management are more difficult than ever and that FTP is essential to consolidating these risks into a central mismatch unit for which ALCO must be held accountable. Of course, FTP is not the end of risk and profitability management; once meaningful FTP spreads have been calculated at a transaction level, banks are compelled to think through their capital attribution methodologies in order to have economically-robust measures of ROE with which to make critical capital allocation decisions.
I am looking forward to the next Risk Training event at which I will be presenting: Deposit Modeling, NMDs and the Treasury which will be held in New York at the end of August. At this event, I will be discussing the NMD model I developed; this model is designed to be run by/for the bank each month in order to provide real-time feedback on the validity of key behavioral assumptions. In addition, the NMD model contains a comprehensive FTP engine – it computes FTP rates on NMDs over the complete time-series of historical data which is provided for analysis, the current position balance each month as well as any number of pro forma scenarios. The latter capability was developed to 1) ensure that budgeted and forecasted FTP rates (spreads) are produced using the same engine used to calculate current position FTP rates (spreads) and 2) demonstrate the effectiveness of the embedded FTP methodologies at immunizing deposit products against interest rate and liquidity risk. This model has proven to be extraordinarily valuable to bank clients as it clarifies the absolute and relative economic value of each unique NMD product and it compels deposit gatherers to be fully aware of the relationship between behaviors and value.
I hope to see you in August in New York.