Syllabus
1) Intro - (i) ALM teaser - How does bank earn money. What does ALM do. Banks balance sheet; ALCO decisions, composition, report; active/passive ALM; (ii) Admin - Intro lecturers; Course program and expectations from both sides; Grading
2) YC refresh and product characteristics - (i) Yield curve (shapes, theories, fwd rates, ASW, IR derivatives); Duration and Convexity; (ii) BS - product characteristics (LQ, IR behavior)
3) Liquidity risk and FX risk - What, why, how. Measuring, steering. Liquidity gap. Regulatory ratios: LCR, NSFR. Daily and strategic FX risk. FX liquidity. Measurement, steering
4) Case study 1 (LQ and FX risk) and voluntary short presentations/referat
5) Interest rate risk - IR gaps. Key rate shocks. Yearly earnings versus Value - optimization targets and impact on BS steering. Sensitivity of earnings and value. MVoE/EVE. Regulatory framework for IRRBB
6) Case study 2 (IR risk) and voluntary short presentation/referat
7) ALM and financial market - Steering IR/LQ/FX risk externally. Economic and accounting aspects (ias39, ifrs9 classifications) of banking book investments. Hedging using IRS and CIRS. Hedge accounting, cash flow vs fair value hedges. Own issues – covered, senior, AT1. MREL
8) Product modeling - Non maturity products on liabilities and asset side (aka "how long are demand deposits"). Banking product optionalities and prepayments. Modeling techniques and dealing with uncertainties.
9) Funds transfer pricing - Steering IR/LQ/FX risk internally. What, why, when, steering, controlling, concepts. Practical calculations. Structural contribution alias Transformation margin.
10) Case study 3 (FTP) and voluntary short presentation/referat
11) ALM hot topics - Impacts of FX interventions, QE, negative rates (and IRS)... Banking market trends and ALM (Consumer credit directive)
12) ALCO game
Annotation
*** THIS COURSE IS REPLACED BY JEM 198 IN 2018! Please do not sign up here (JEM 197) but to JEM 198!!! ***
The course will provide a hands-on dive into how banks steer their balance sheets. The focus will be mainly on liquidity and interest rate (IR) risks and their steering. Students will understand how the IR position influences bank’s interest income and the value of its equity over time. Alternatives to steering the balance sheet via internal pricing of liquidity (FTP) and externally, via operations with bonds and interest rate derivatives, will be explained and practiced. Real life banks' balance sheets and situations on financial markets will be used during the course as both lectors are employed as ALM professionals by a leading domestic bank.