Intro to ALM

• Business Cycles and Interest Rates
• Risks and Rewards

Funds Transfer Pricing

• The case for scale economies and skill centralization
• Identifying Economic Value Added of Customer Banking businesses
• Product & Customer Profitability Controls
  • Illustrative Case Study drawn from a mortgage bank´s balance sheet
• The Treasury Business Remit:
• The Treasury “Banking Books”: Net Interest Income Generation (with / without customer Margin)
  • Case Study with Excel simplified Balance Sheet
• Liquidity Risk (internal lender of last resort)
  • Case Study with Excel simplified Balance Sheet
• Re-Pricing Risk (interest rates, FX)
  • Case Study with Excel simplified Balance Sheet
• Maturity Mismatch Risk & the Dynamics of Liquidity Gaps
  • Illustration of Citigroup´s Dynamic Balance Sheet
• ST (MT & LT) Funding & Securing of Contingent Funding / Liquidity sources
• Modeling (Replicating) Customer Assets & Liabilities: “The model books”
  • Example: Swiss Bank
• The maturity transformation and “riding the yield curves”
  • Example: Large US International Bank
• Regulatory Compliance & Rating Safeguarding
• Counterparty Default & Settlement Risks
• Management of a Customer Banking Book
• Hedging Risks with “macro-swaps”
• Basis Risks in banking books
• Case Study: Hedging Re-pricing risks with Constant Maturity Swaps
• Liquidity Premium determination – best practices
• P&L Volatility Issues – which FTP Mechanism is best suited?
  • Case Studies
• Immunizing Retail Customer Margins via adequate FTP – Examples
• Traditional Methods:
  • Cost of funds Method
  • Matched Maturity Method
  • Asset/Liability pooling
  • Off Balance Sheet Considerations
• Institutional Blended cost of Funds Determination
  • Universal Banking Models (employing SFT & REPO Structures)
  • Retail Banking Models
• Pushing the edge of the envelope:
  • FTP for Credit Risk: the Credit Treasury Model
• Best Practices Examples from US & European Banks

• The ALCO Business Remit
• ALCO vs. Treasury
• Long Term Investment Policies
• Case Study: Deploying shareholders Equity
• Treasury Philosophies beyond Liquidity Providers of Last Resort
• Profit Centers: NII Producers
• Service Centers: Margin Stability Providers
• Repricing Gaps vs DV01/ Duration/Convexity
• Liquidity Gaps
• Managing Asset Liquidity – Case Study
• Stress Testing Deposit “Stickiness”- Case Study
• The Stress Testing Conundrum:

• What does the regulator expect from Banks?
• Stress Testing Scenarios
• Credit Stress Testing
• Reverse Stress Testing
• Integration of Stress Testing into the Risk Management Framework
• Crisis Management
• Ex Ante Market Access
• Defensive Measures
• Recentralisation
• Funding Management
• Prioritising Funding Draw-downs
• Extending Liabilities Maturities
• Suspending Cash Flows
• Risk Hedging
• Hedging Interest Rate Risk – Best Practices
• Hedging with Eurodollar Futures
• Cross Hedges
• Managing Basis Risk
• Hedges with OTC Derivatives:
• IR Swaps
• Caps, floors, Swaptions

• Accounting for Treasury Books: IFRS
• Fair Value Hedges – Key Issues
• Swapping risk to OIS Curves
• MtM vs “Available for Sale” vs. Held to Maturity” Books
• Accrued vs. MtM Accounting Standards – link to financial accounting for Net Interest Income
• Regulatory Compliance – Liquidity