Behaviour Modelling in Bank Asset Liability Management

Among the topics covered in the course will be the following:

• Basic techniques in measuring and managing IRRBB, including: construction of the re-pricing gap profile, calculation of Earnings-at-Risk (‘EaR’), Economic Value of Equity (‘EVE’), the Basel ll Standardised Shock Test, basis risk, residual risk, static and dynamic balance sheet modelling assumptions and other traditional IRRBB metrics and methods as a foundation for applying behavioural models;
• Understanding some widely used interest rate and liquidity ALM behavioral models and their IRRBB, Funds & Liquidity Transfer Pricing (‘FLTP’) and balance sheet optimization applications
• Focus on non-maturing deposits (‘NMDs’), and loan pre-payment / deposit early redemption optionality modelling using Basel 3 IRRBB standard measurements and more advanced modelling methods – understanding their assumptions and infrastructure requirements (specific model examples and exercises using some simple spread sheet demonstration tools)

• Interest Rate Risk Banking Book (IRRBB) & Behavioural Modelling:
• Overview of bank balance sheet structure, products & intermediation process
• IRRBB princpal components & measurement methods
• Base yield curves & re-pricing gap risk
• Behavioral Models for Measuring ALM IRRBB & Liquidity Risks
• Less Amenable behavioural optionality treatment and Non-Amenable – NMD (‘non maturing deposits’) treatment – IRRBB SFA TSA (‘Time Series Approach’)
• Behavioural Models – with simple spread sheet calculation examples, NMD balances behavioural segmentation CPR and SMM cash flow modelling, Effective Maturity modelling, Interest rate deposit ‘pass-through’ behaviour modelling.
• Basel 3 models’ usage & reliance overview: interest rate vs. liquidity risk management
• Applying Behavioural Models in Funds & Liquidity Transfer Pricing (‘FLTP’) & Balance Sheet Optimisation
• FLTP – IRRBB and liquidity risk pricing & cost allocations – modelling of reference rate
• ALCO – ALM Market Risk (‘IRRBB’) Governance & Exposure Management
• IRRBB & Basel ICAAP, IRRBB Basel Pillar 2 Internal Capital Adequacy Assessment Process (‘ICAAP’) IRRBB capital calculations (ROE vs. RAROC / Economic Capital), IRRBB systems and data requirements issues, behavioural modelling in bank balance sheet optimization