Day One

Session 1
Banking 2020 with Foresight and the role of ALM
• Yesterday  - how the credit crunch impacted banks and redefined it for future generations
• Today – the products/strategies that banks are adopting post credit crunch and in response to the regulation that followed it.
• Tomorrow – Exploring how banks are likely to change over the next 5 years, what will challenge their Profitability and require them more than ever to think  ‘Prudentiability’ and what this means for the ALM function

Activity: Group discussion on the cause and impact of the 2008 credit crisis, how it impacted banks globally and the future of the industry because of it

Session 2
The balance sheet structure and the regulatory guardrails
• A recap of the structure of a balance sheet
• From I to II to III – the evolution of the Basel Accords
• Impact on costs, how banks globally are reacting and thoughts on what a Basel IV would look like

Activity:  Delegates will be asked to review and present the impact of Basel III on a set of bank financials provided

Session 3
Basel III Regulatory Capital Requirements
• Types of Capital – the hierarchy based on shock absorbing ability, going versus gone concern and the narrowing of eligibility
• Constraining Risk – CET1, Tier 1 and Total Capital Ratios
• Constraining Size – The Leverage Ratio, variations in national interpretation and challenges on Net Funding Generation [NFG]

Activity: Delegates will be asked to calculate the regulatory capital ratios from a set of bank financials provided and opine on adequacy/efficiency

Session 4
Economic Capital
• How economic capital differs from regulatory
• Uses of economic capital in internal allocation
• The economic capital framework: PD, LGD, EAD and other factors defining credit risk

Activity: Delegates will be asked to evaluate economic capital for different divisions of an example bank and make strategic investment recommendations based on this and strategy of the bank
 

Day Two

Session 1
The Individual Capital Adequacy Assessment Process
• Defining ICAAP and the Supervisory Review and Evaluation Process [SREP]
• What ‘shocks’ does capital need to be be held for – credit, market and operational risk
• Principles of stress testing and Total Loss Absorbing Capital

Activity: Delegates will assess the adequacy of capital available on a balance sheet when compared to results of stress tests on it

Session 2
The Quality of Assets
•  What is asset quality? Why is it important? Knock-on impact of asset quality problems
• Evaluating asset quality—quantitative indicators; qualitative criteria
• Realised losses or expected losses -  the decision of when to impair loans and the impact of move from IAS 39 to IFRS 9

Activity: Assessing asset quality from qualitative information

Session 3
Calculating RWA’s
• The standardised approach for banking book and trading book
• The Internal Ratings Based [IRB] approach
• The 4 P’s of RWA Optimisation – Processes, Practices, Portfolio, Products

Activity: Delegates will be asked to calculate the RWA of a diversified loan portfolio and make recommendations on how to optimise

Session 4
Counterparty Risk
• The need for clarity of counterparty risk
• Key changes in counterparty risk measurement from Basel II to Basel III
• Capital Optimisation benefits generated from improved sophistication

Activity: Using a simplified model delegates will be asked to calculate counterparty exposure and consider ways of mitigating the risk

Day Three

Session 1
Basel III Regulatory Liquidity Requirements
• Basel III – Rationale for ‘Premier’ of Liquidity
• Surviving a run - Liquidity Coverage Ratio (LCR)
• Maturity matching - Net Stable Funding Ratio (NSFR)

Activity: Participants will calculate LCR and NSFR for a commercial banks deposits portfolio

Session 2
Commerciality of the Liquidity Portfolio
• Data challenges in calculating LCR and NSFR
• Optimization of the Liquidity Pool/Buffer and associated opportunity cost
• The capital drain of Net Funding Surplus versus margin decompression
• Non Wholesale vs Wholesale generation, penetrating the wallet and future linked earnings

Activity: Building on the information provided in the previous activity, delegates will articulate the opportunity cost of holding the LCR and be asked to consider an appropriate optimization strategy

Session 3
Wholesale Liquidity
• Accruals and discount instruments and types of yield
• Examples and characteristics of non-collateralized instruments [to include interbank loans/deposits, bills, CD, CP and bonds]
• Examples and characteristics of collateralized instruments [to include repo and securitizations]

Activity: Delegates will calculate the yield of a range of wholesale funding instruments and make a finding decision based on the results

Session 4
Non-Wholesale Liquidity
• Types of operational and non-operational balances and their relative attractiveness
• ‘Behavioralisation ‘– term value beyond contractual value, it’s significance in how banks match funding to assets and current themes in it’s derivation
• Funds Transfer Pricing (FTP) – considering the ‘true value’ of liquidity and ‘true cost’ of assets

Activity: Delegates will be presented with the behavioral profile of a non-wholesale portfolio, as well as the FTP ‘curve’ and be asked to calculate the blended FTP rate

Day Four

Session 1
Calculating DV01
• Recap on Time Value of Money and the calculation of PV, FV and Yield
• Deriving DV01 at a portfolio level and testing for ‘shocks’ against it
• Time bucketing and hedging of DV01 within a portfolio

Activity: Delegates will calculate the time bucketed DV01 of a portfolio and suggest an appropriate hedge

Session 2
Calculating Duration
• Drivers of sensitivity within a portfolio – short vs long dated and low vs high yield
• Calculating the duration ‘estimate’ – MaCaulay and Modified
• Refining the estimate – calculation of Convexity and it’s application to sensitivity

Activity: Delegates will calculate the duration and convexity of a bond portfolio

Session 3
Uses of Swaps in structural hedging
• Recap on what swaps are not, what they are and their characteristics
• Using swaps to structural hedge IR risk and Net Interest Margin [NIM] – swapping from floating to fixed, fixed to floating and floating to floating [Basis Swaps], deciding the appropriate tenor of a structural hedge program
• Using swaps to structural hedge duration

Activity: Delegates will suggest an appropriate swap strategy for hedging the structural risk of a portfolio

Session 4
Deriving the price of a swap and valuation
• Pricing a fixed/floating swap using the zero’s curve
• Valuation of Swaps using the ‘offset’ Mark to Market and PV methodologies
• IAS 39 – when can swaps be fair valued or accrued

Activity: Delegates will calculate the price of a fixed/floating interest rate swap and using that price market to market an existing swap

Day Five

Session 1
Overview of Foreign Exchange
• Recap on foreign exchange, the size of the market place and currency pair conventions
• Day count conventions – all years are not created equal
• Cash FX instruments – Spot and Forward and derivations thereof

Activity: Delegates will derive forward points from first principles

Session 2
Evaluating Structural FX Risk
• Hedging the spot open position in a portfolio
• Hedging the IR risk inherent in a forwards portfolio
• Cross currency funding using FX Swaps

Activity: Delegates will evaluate the structural FX risk of a balance sheet and suggest an appropriate hedging strategy

Session 3
Principles of Value at Risk [VaR]
• Benefits of VaR in providing a holistic view of risk
• Parametric and Non parametric approaches
• A simplified approach using binomial tree

Activity: Using a discrete binomial distribution, delegates will calculate a simplified version of VaR for a spectrum of confidence levels

Session 4
Trading Simulation
• What are the external drivers of market risk
• The irrational features of a market place
• The importance of ALM in being custodians of the balance sheet

Activity: Participants will take on the role of market traders and trade a currency pair through a series of market events