Are you ready for the next move in rates and liquidity spreads?
Thanks to Marcus Evans and the delegates to my recent ALM Workshop in New York for another exciting discussion about the role of FTP in quantifying and managing IRR, LR and profitability. I think everyone came to see the logic and benefits of analyzing risk and profitability (at banks, credit unions and levered FIs) in a consistent and economically robust manner.
We discussed at length the benefits of using an ALM/FTP model that allows for transaction-level FTP calculations AND which can evolve FTP rates on existing AND new business into the future across any hypothetical interest rate and liquidity cost scenarios. Stand-alone FTP systems generally fail in this regard, but well-designed ALM models should handle this with ease. Coupled with dynamic behavioral models which naturally support the calculation of FTP rates, this alignment allows for the comparison of the (slope of the) risk profile of the FI with that of the mismatch center which is necessary to prove that the business units have been immunized from IRR and LR, risks over which they otherwise have no control.
I hope to see you this coming week at my NMD Workshop in London!