Bank Asset-Liability Management

Preface
About This Book
References
Contents
About the Author
Abbreviations
List of Figures
List of Tables
1 Introduction
	1.1 ALM in Banks
		1.1.1 How the Recent Rise in Interest Rates Creates Interest Rate Risk
		1.1.2 Economic Value vs. Earnings Perspective
		1.1.3 Purpose of ALM and IRRBB
		1.1.4 Stakeholders of ALM
		1.1.5 Banking Book vs. Trading Book
		1.1.6 Instruments Used in ALM
		1.1.7 Risk vs. Return
	1.2 Interest Rate Risk
		1.2.1 Changes in Interest Rates
		1.2.2 Types of Interest Rate Risk
			1.2.2.1 Interest Rate Gap Risk
			1.2.2.2 Interest Rate Basis Risk
			1.2.2.3 Interest Rate Option Risk
			1.2.2.4 Credit Spread Risk
			1.2.2.5 Liquidity Risk
		1.2.3 Duration
	Notes
	References
2 ALM Techniques
	2.1 Economic Value Measures
		2.1.1 Economic Value of Equity
		2.1.2 Economic Value Calculation
		2.1.3 Repricing Gap Analysis
		2.1.4 Duration Gap Analysis
	2.2 Earnings Measures
		2.2.1 NII Forecast
			2.2.1.1 Assumptions About the Future Balance Sheet
			2.2.1.2 Assumptions About Future Interest Rates
		2.2.2 NII Sensitivity
		2.2.3 Earning Gap Analysis
		2.2.4 NII Simulation
			2.2.4.1 Model Bank
			2.2.4.2 Monthly Baseline NII
			2.2.4.3 Total Baseline NII
			2.2.4.4 Monthly Shock Scenario NII
			2.2.4.5 Total Shock Scenario NII
			2.2.4.6 Hedging NII
			2.2.4.7 Total Hedged Shock Scenario NII
			2.2.4.8 Caveats
		2.2.5 Economic Value vs. Earnings Measures: A Critique
		2.2.6 Change in Market Value Outside of the NII Horizon
	2.3 Funds Transfer Pricing (FTP)
		2.3.1 Net Interest Margin
		2.3.2 Cost of Funds
		2.3.3 Transfer Price Curve
		2.3.4 Structural Contribution
		2.3.5 Interest Rate vs. Liquidity Risk
		2.3.6 Multi-currency FTP Curve
		2.3.7 Steering the Bank’s Customer Business
		2.3.8 Regulatory Requirements
			2.3.8.1 Liquidity Coverage Ratio
			2.3.8.2 Net Stable Funding Ratio
			2.3.8.3 Clearing Mandate
			2.3.8.4 Margin Requirements
		2.3.9 Relation to Funding Value Adjustment
		2.3.10 Further Developments
			2.3.10.1 Contingency Liquidity
			2.3.10.2 Optionality
			2.3.10.3 Counterparty Credit and Operational Risk
		2.3.11 Conclusion
	2.4 Non-maturity Products
		2.4.1 Examples of Non-maturity Products
		2.4.2 Liquidity and Interest Rate Profile
		2.4.3 Embedded Options
	2.5 Replicating Model
		2.5.1 Intuition
		2.5.2 Rolling Portfolio
		2.5.3 Replication Over Time
		2.5.4 Calibration
		2.5.5 Volume Changes
		2.5.6 Dynamic Replication
		2.5.7 Further Developments
		2.5.8 Criticism
	Notes
	References
3 Bank ALM in Practice
	3.1 Bank-Specific ALM
		3.1.1 Composition of Banks’ Balance Sheets Over Time
		3.1.2 Regional Differences
		3.1.3 Balance Sheets for Different Business Models
		3.1.4 ALM as a Profit or a Cost Center
		3.1.5 Implications for ALM
	3.2 NII Planning
		3.2.1 Planning Horizons
		3.2.2 Scenario Planning
		3.2.3 Volume Planning
		3.2.4 Margin Planning
		3.2.5 Comprehensive ALM Plan
	3.3 Behavioral Economics
		3.3.1 Behavioral Assumptions About Bank Customers
		3.3.2 Behavioral Assumptions About Banks
	3.4 Holistic ALM
	3.5 Negative Interest Rates
		3.5.1 0% Interest Rate Floor
		3.5.2 Economic Implications
		3.5.3 Regulatory Implications
		3.5.4 Challenges
	3.6 Rapid Rise in Interest Rates
	Notes
	References
4 Case Study: The Collapse of Silicon Valley Bank
	4.1 SVB Introduction
	4.2 Early Warning Signs
	4.3 An ALM View on SVB’s Balance Sheet
		4.3.1 At a Glance: GAAP vs. Non-GAAP
		4.3.2 NII Perspective
		4.3.3 Duration Gap
		4.3.4 Behavioral Assumptions
	4.4 Lessons Learned
	Notes
	References
5 Update on Regulatory and Supervisory Changes to IRRBB
	5.1 A Brief History of IRRBB Regulation
		5.1.1 Basel Committee on Banking Supervision (BCBS)
		5.1.2 European Parliament and Council
			5.1.2.1 Capital Requirements Directives (CRD)
			5.1.2.2 Capital Requirements Regulation (CRR)
		5.1.3 European Banking Authority (EBA)
	5.2 IRRBB Measures
		5.2.1 EBA Standardized Approach (SA)
		5.2.2 EBA Simplified Standardized Approach(S-SA)
	5.3 Supervisory Outlier Tests
		5.3.1 Supervisory Outlier Test on EVE
		5.3.2 Supervisory Outlier Test on NII
	5.4 The Simultaneous Compliance Problem
	5.5 Supervisory Reporting of IRRBB
		5.5.1 IRRBB Assessment
		5.5.2 Breakdown of IRRBB Sensitivity Estimates
		5.5.3 IRRBB Repricing Cash Flows
		5.5.4 Behavioral Modeling Parameters
		5.5.5 Qualitative Information
	Notes
	References
6 The Future of ALM
	6.1 FinTech
	6.2 Digital Assets
	6.3 Big Data and Advanced Analytics
	6.4 Climate Risk Management
	6.5 Behavioral Modeling
	Notes
	References
Index