Auditing and validating asset liability management models
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The exact roles and perimeter around ALM can vary significantly from one bank (or other financial institutions) to another depending on the business model adopted and can encompass a broad area of risks.
The traditional ALM programs focus on interest rate risk and liquidity risk because they represent the most prominent risks affecting the organization balance-sheet (as they require coordination between assets and liabilities).
The process is at the crossroads between risk management and strategic planning.
It is not just about offering solutions to mitigate or hedge the risks arising from the interaction of assets and liabilities but is focused on a long-term perspective: success in the process of maximising assets to meet complex liabilities may increase profitability.
PROFITstar ALM Budgeting allows institutions to track scenarios with built-in strategic monitors that automatically create audit trails.
Multiple scenarios can be created and compared to determine the most profitable strategic direction.
For banking institutions, treasury and ALM are strictly interrelated with each other and collaborate in managing both liquidity, interest rate, and currency risk at solo and group level: Where ALM focuses more on risk analysis and medium- and long-term financing needs, treasury manages short-term funding (mainly up to one year) including intra-day liquidity management and cash clearing, crisis liquidity monitoring.
Today, ALM techniques and processes have been extended and adopted by corporations other than financial institutions; e.g., insurance.
For simplification treasury management can be covered and depicted from a corporate perspective looking at the management of liquidity, funding, and financial risk.
We validate both ALM models run by our clients in-house and those run by other primary ALM advice providers.
Our work includes validation of models that include stochastic forecasting of interest rate risk.