. Subsequently, calculated ALM can considerably boost monetary efficiency by delivering a much better equilibrium between returns and threats across the on and off-balance sheet items.

Program Purposes of Masterclass on Asset Liability Management (ALM) Optimization

• Understand the ALM function in a financial institution
• Gain an understanding on the IRRBB measurement methods
• Gain an understanding on the IRRBB earnings enhancement strategies
• Getting rid of the functional difficulties associated with the BCBS 368 Demand
• Gain knowledge on the pricing of liquidity
• Summary of the most effective method in the Funds Transfer Rates procedure
• Introduction of the balance sheet optimization techniques

Day 1
ALM Introduction and Overview

• IRRBB measurement, management and strategies

• Case study: calculation of the NII sensitivity and EVE volatility under different interest rate scenarios

• Case study: assessment of the basis risk through re-fixing gap analysis

• Case study: analysis of the IRRBB metrics – is the IRRBB well managed?

Day 2
Introduction to the liquidity risk managed within ALM

• Case study: calculation of the size of the liquidity buffer in a bank

• Trade-off between hedging and funding strategies

• Case study: undertaking different hedging and funding strategies – what happens?

• Case study: Pros and Cons of the use of derivatives – practical example

• Summary of the main take away messages for the IRRBB and liquidity

• Basel Committee of Banking Supervision Standards and European Banking Authority – detailed analysis of the requirements for IRRBB

Day 3
ALM role in the FTP framework

• What is Funds Transfer Pricing?

• Case study: calculation of Net Interest Margin in business units and ALM

• Case study: analysis of the ALM P&L components

• Introduction to the Balance Sheet Optimisation techniques

• Conclusions and Questions

Day 4
Formulation of the Optimisation Process and Articulation of the Decision Model

• The Optimisation Method Applied to the Banking Book 

• Introduction of the Optimisation Concept 

• Definition of the Initial Banking Book Profile 

• Building the Objective and Constraint Functions in the Optimisation Process 

• The Importance of Model Sensitivity Analysis 

• Definition of the Sensitivity Parameters for the Optimisation Model 

• ‘Significant Changes in Interest Rates’ Scenario 

• Changes in the Initial Proportions of the Asset Base 

• Changes in the Output of the Deposit Characterisation Model – Balance Volatility, Balance Sensitivity, and Average Life of the Product 

• Introduction of the CPR into the Model

Day 5
Derivatives Hedging in ALM

• Derivatives hedge accounting under IFRS 9. What place for non-designated hedges with economic benefit?

• Review of key interest rate and FX derivatives used in ALM

• Level 2 vs. Level 3 valuation

• Using interest rate derivatives to manage net interest income, fair value portfolios, and funding management

• Standard vs. non-standard derivatives

• Operational and liquidity implications

• Enhancing income through use of derivatives

• ALM impact of clearing derivatives through central clearers vs. bilateral margining

• Collateral and capital implications of new derivatives regulations

• Impacts on capital and financial performance from derivatives applications