The document discusses the need for integrated balance sheet management in financial institutions. It notes that traditional ALM focusing only on interest rate risk and capital is evolving into dynamic balance sheet management that drives strategic decisions. Future state balance sheet management will fundamentally change operating models, rationalize data/technology, and use enhanced analytics to optimize strategies under multiple constraints. Implementing these changes requires sponsorship from the Board and cross-functional participation across the organization.
investment decisions, risk and uncertainity, types of risk, techniques of measuring risk, cost of capital, importance, factors affecting cost of capital, computation of cost of capital, capital structure, capital structure theories, dividend theories, walter model, gordon model, mm model, working capital management, types of working capital, factors influencing working capital, preparation of cash budget, problems on working capital, corporate valuation,methods
investment decisions, risk and uncertainity, types of risk, techniques of measuring risk, cost of capital, importance, factors affecting cost of capital, computation of cost of capital, capital structure, capital structure theories, dividend theories, walter model, gordon model, mm model, working capital management, types of working capital, factors influencing working capital, preparation of cash budget, problems on working capital, corporate valuation,methods
Financial Factors, Qualitative Factors and Investment PracticesDipesh Pandey
Qualitative Factors, Models of Project Appraisal, Analytic Hierarchy Process, Strategic Index Method, Capital Investment Decisions, Problems of Capital Rationing, Working Capital Management, Investment Practices of Insurance Companies.
MODULE 3:
Credit Risks Credit Risk Management models - Introduction, Motivation, Funtionality of good credit. Risk Management models- Review of Markowitz’s Portfolio selection theory –Credit Risk Pricing Model – Capital and Rgulation. Risk management of Credit Derivatives.
2013 Callan Cost of Doing Business Survey: U.S. Funds and TrustsCallan
Monitoring and controlling costs is a primary fiduciary responsibility for all funds and trusts. In this survey, Callan compares the costs of administering and operating funds and trusts across all types of tax-exempt and tax-qualified organizations in the U.S.
We identify practices and trends to help institutional investors manage expenses.
We fielded this survey in April and May of 2013. The results incorporate responses from 49 fund sponsors representing $219 billion in assets. In this report, we include comparisons with four similar surveys Callan conducted over the past 15 years to identify enduring, long-term trends in fund/trust management and expenses.
Major long-term trends identified include rising external investment management fees and non-investment management external advisor fees, alongside falling custody costs. Allocations have steadily shifted out of U.S. equity and into non-U.S. and global equities, real estate, hedge funds, and private equity since 1998. Other key findings include:
• In 2012, funds spent an average of 54 basis points of total assets to operate their funds. Average total fund expenses have climbed more than 50% since 1998, when Callan first collected this data.
• External investment management fees represent the lion’s share of total fund expenses at 90%. This figure has grown steadily over time, from 83% in 1998. The increase can largely be attributed to growing allocations to more expensive alternative
asset classes, namely hedge funds and private equity.
• More assets flowed to hedge funds and private equity, as the percentage of funds invested in and the average allocations to these asset classes grew. Hedge fund and private equity fees saw modest declines at the median over the last four years, while averages were fairly static. Real estate fees saw little change and the average allocation remained around 6%.
• Not surprisingly, smaller funds—defined as those with less than $1 billion in total assets—pay a premium (65 basis points, on average) to administer their funds relative to mid-sized and larger funds. Conversely, there is little difference between total expenses for the medium (47 basis points) and large funds (48.5 basis points) that responded to our survey. This can
be attributed to differences in asset allocation, as large funds tend to invest in more expensive strategies.
• External investment management fees are the primary driver of total fund expenses. These fees have risen 55% over 15 years. Non-investment management external advisor fees,1 which are the second largest average expense for U.S.
funds, have increased 115% since 1998. However, at 5% of total fund expenses, changes in this area have a more modest impact than external investment management fees.
Mercer Capital's Community Bank Stress Testing: What You Need to KnowMercer Capital
While there is no legal requirement for community banks to perform stress tests, recent regulatory commentary suggests that community banks should be developing and implementing some form of stress testing on at least an annual basis.
Whether you are considering performing the test in-house or with outside assistance, this webinar will be of interest to you. This webinar: covers the basics of community bank stress testing; reviews the economic scenarios published by the Federal Reserve; provides detail on the key steps to developing a sound community bank stress test; and discusses how to analyze and act upon the outputs of your stress tests.
Introduction to Operational Risk Management for Bank Junior Officers in Indiamlvenkat
This is an introductory, self-explanatory presentation on Operational Risk Management for Junior officers in Banks in India, illustrated with lots of interesting images to make the concepts easy to understand. Follow the link at the end of the slides to read interesting Op Risk stories compiled from day to day banking, which can be used for group exercise or better personal understanding. (Answers are not given! You have to generate them yourselves or from team members ! ).
(The story on Corporate Banking may appear similar to the recent Banking scam -Feb 2018- in India, but then, similar frauds have been repeatedly happening in one Bank or the other in the last 30 years in India. Neither Commercial Banks in India nor Reserve Bank of India have learnt the operational risk lessons).
You are free to use the slides and my stories for your work.
You can customise the stories to suit your banking environment and/or to add your own Bank stories to build up a library of Op Risk events.
I acknowledge and thank Internet and all original creators for providing cartoons, illustrations, photos, jokes and information which I have liberally used in the PPT.
Financial Factors, Qualitative Factors and Investment PracticesDipesh Pandey
Qualitative Factors, Models of Project Appraisal, Analytic Hierarchy Process, Strategic Index Method, Capital Investment Decisions, Problems of Capital Rationing, Working Capital Management, Investment Practices of Insurance Companies.
MODULE 3:
Credit Risks Credit Risk Management models - Introduction, Motivation, Funtionality of good credit. Risk Management models- Review of Markowitz’s Portfolio selection theory –Credit Risk Pricing Model – Capital and Rgulation. Risk management of Credit Derivatives.
2013 Callan Cost of Doing Business Survey: U.S. Funds and TrustsCallan
Monitoring and controlling costs is a primary fiduciary responsibility for all funds and trusts. In this survey, Callan compares the costs of administering and operating funds and trusts across all types of tax-exempt and tax-qualified organizations in the U.S.
We identify practices and trends to help institutional investors manage expenses.
We fielded this survey in April and May of 2013. The results incorporate responses from 49 fund sponsors representing $219 billion in assets. In this report, we include comparisons with four similar surveys Callan conducted over the past 15 years to identify enduring, long-term trends in fund/trust management and expenses.
Major long-term trends identified include rising external investment management fees and non-investment management external advisor fees, alongside falling custody costs. Allocations have steadily shifted out of U.S. equity and into non-U.S. and global equities, real estate, hedge funds, and private equity since 1998. Other key findings include:
• In 2012, funds spent an average of 54 basis points of total assets to operate their funds. Average total fund expenses have climbed more than 50% since 1998, when Callan first collected this data.
• External investment management fees represent the lion’s share of total fund expenses at 90%. This figure has grown steadily over time, from 83% in 1998. The increase can largely be attributed to growing allocations to more expensive alternative
asset classes, namely hedge funds and private equity.
• More assets flowed to hedge funds and private equity, as the percentage of funds invested in and the average allocations to these asset classes grew. Hedge fund and private equity fees saw modest declines at the median over the last four years, while averages were fairly static. Real estate fees saw little change and the average allocation remained around 6%.
• Not surprisingly, smaller funds—defined as those with less than $1 billion in total assets—pay a premium (65 basis points, on average) to administer their funds relative to mid-sized and larger funds. Conversely, there is little difference between total expenses for the medium (47 basis points) and large funds (48.5 basis points) that responded to our survey. This can
be attributed to differences in asset allocation, as large funds tend to invest in more expensive strategies.
• External investment management fees are the primary driver of total fund expenses. These fees have risen 55% over 15 years. Non-investment management external advisor fees,1 which are the second largest average expense for U.S.
funds, have increased 115% since 1998. However, at 5% of total fund expenses, changes in this area have a more modest impact than external investment management fees.
Mercer Capital's Community Bank Stress Testing: What You Need to KnowMercer Capital
While there is no legal requirement for community banks to perform stress tests, recent regulatory commentary suggests that community banks should be developing and implementing some form of stress testing on at least an annual basis.
Whether you are considering performing the test in-house or with outside assistance, this webinar will be of interest to you. This webinar: covers the basics of community bank stress testing; reviews the economic scenarios published by the Federal Reserve; provides detail on the key steps to developing a sound community bank stress test; and discusses how to analyze and act upon the outputs of your stress tests.
Introduction to Operational Risk Management for Bank Junior Officers in Indiamlvenkat
This is an introductory, self-explanatory presentation on Operational Risk Management for Junior officers in Banks in India, illustrated with lots of interesting images to make the concepts easy to understand. Follow the link at the end of the slides to read interesting Op Risk stories compiled from day to day banking, which can be used for group exercise or better personal understanding. (Answers are not given! You have to generate them yourselves or from team members ! ).
(The story on Corporate Banking may appear similar to the recent Banking scam -Feb 2018- in India, but then, similar frauds have been repeatedly happening in one Bank or the other in the last 30 years in India. Neither Commercial Banks in India nor Reserve Bank of India have learnt the operational risk lessons).
You are free to use the slides and my stories for your work.
You can customise the stories to suit your banking environment and/or to add your own Bank stories to build up a library of Op Risk events.
I acknowledge and thank Internet and all original creators for providing cartoons, illustrations, photos, jokes and information which I have liberally used in the PPT.
Taking the road to advanced approaches and heightened standards in risk manag...Grant Thornton LLP
Develop and execute a roadmap to meet rising regulatory and stakeholder expectations. Banks of all sizes are required to build sophisticated analytical risk management capabilities in compliance with Dodd-Frank and other legislation making a priority of optimizing the deployment of capital and infusing objectivity into its allocation.
Risk Management in Banks - Overview (May 2024)Kristi Rohtsalu
Risk is at the heart of banking – and so is risk management. In a regulated bank, it is crucial to take a holistic view, including economic and normative perspectives. This material gives an overview of enterprise risk management in banks; specifics by risk type – credit risk, market risk, operational risk, liquidity risk, and other relevant risks – are not discussed here.
Building out a Robust and Efficient Risk Management - Alan CheungLászló Árvai
Credit Derivatives are off-balance sheet financial statements that permit one party to transfer the risk of a reference asset, which it typically owns, to another one party (the guarantor) without actually selling the assets.
RISK-ACADEMY’s guide on risk appetite in non-financial companies. Free downloadAlexei Sidorenko, CRMP
Risk appetite refers to an individual or organization’s willingness to take on risks in pursuit of potential returns. It is an important consideration for businesses, as it can determine the types of investments and strategic decisions they make. A high risk appetite may lead to a focus on high-growth, speculative investments, while a low risk appetite may result in a preference for more conservative, steady returns. It is important for businesses to carefully assess and manage their risk appetite in order to make informed decisions and achieve their financial goals.
But before beginning the conversation about risk appetite, it is important to remember that most non financial organizations have already documented their appetites for different common decisions or business activities. Segregation of duties, financing and deal limits, vendor selection criteria, credit limits, treasury limits on banks, investment criteria, zero tolerance to fraud or safety risks – are all examples of how organizations set risk appetite.
What is risk appetite:
10% of the time risk appetite is imposed by laws and regulations, not set – Often risk appetite is imposed by government, regulators, markets, not set by management. Examples include zero-tolerances or limits on safety, bribery and corruption, AML, pollution, sanctions, privacy.
10% of the time risk appetite is the gentlemen’s agreement between Board and management – Boards have an important oversight role and help them set the direction and boundaries for management decision making. Those management decision making boundaries is risk appetite. Examples include deal approvals only by Board above a certain limit, limits on holding percentage of cash in certain pre-approved banks, market risk limits, credit risk limits, insurance thresholds, rules on credit limits for certain types of customers, limits on investments in different countries, etc.
80% of the time risk appetite is the risk reward trade-off for a specific decision – The key is making uncertainty around decisions presented to the Board transparent to allow decision makers choose the alternative which offers the most appropriate risk reward balance according to their individual appetites.
Download the full guide to read about documenting risk appetite, reviewing risk appetite, case studies and examples and addition video resources: Guide to risk appetite 2023
Operational Risk Management under BASEL eraTreat Risk
Operational risk have always ignored by Banks as they thought Credit and market risks can cause catastrophe. But history of misfortunes taught us different lessons. Controls and internal audit have long been construed as guard till BASEL II dictates forced banks to look with insight. Understand the dimension of ORM in this presentation.
Reserves planning: Determining the appropriate level of reserves for your org...Grant Thornton LLP
Maintaining adequate reserves is essential to establishing financial stability. These reserves provide a cushion to deal with operating deficits that may arise due to unexpected events, economic uncertainties, lean funding periods or opportunities for strategic investment. This presentation offers Grant Thornton’s latest thinking on how to establish appropriate reserves levels and our methodology for developing a sophisticated and robust risk-based approach to establishing a reserves policy within your organization.
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
The Evolution of Non-Banking Financial Companies (NBFCs) in India: Challenges...beulahfernandes8
Role in Financial System
NBFCs are critical in bridging the financial inclusion gap.
They provide specialized financial services that cater to segments often neglected by traditional banks.
Economic Impact
NBFCs contribute significantly to India's GDP.
They support sectors like micro, small, and medium enterprises (MSMEs), housing finance, and personal loans.
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
But you can still easily sell pi coins, by reselling it to exchanges/crypto whales interested in holding thousands of pi coins before the mainnet launch.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
Introduction to Indian Financial System ()Avanish Goel
The financial system of a country is an important tool for economic development of the country, as it helps in creation of wealth by linking savings with investments.
It facilitates the flow of funds form the households (savers) to business firms (investors) to aid in wealth creation and development of both the parties
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
Poonawalla Fincorp and IndusInd Bank Introduce New Co-Branded Credit Cardnickysharmasucks
The unveiling of the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card marks a notable milestone in the Indian financial landscape, showcasing a successful partnership between two leading institutions, Poonawalla Fincorp and IndusInd Bank. This co-branded credit card not only offers users a plethora of benefits but also reflects a commitment to innovation and adaptation. With a focus on providing value-driven and customer-centric solutions, this launch represents more than just a new product—it signifies a step towards redefining the banking experience for millions. Promising convenience, rewards, and a touch of luxury in everyday financial transactions, this collaboration aims to cater to the evolving needs of customers and set new standards in the industry.
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
2. Page 2
Overview
► Regulatory reform, changes in Board risk appetite and shifts in the competitive
landscape have significantly increased the complexity of balance sheet
management.
► Traditional ALM focusing on interest rate risk in the banking book and capital
attribution is evolving to dynamic balance sheet management, driving strategic
business and risk management decisions at the highest levels in financial
services organizations.
► Future state strategic balance sheet management will drive:
► Fundamental changes in the operating models of financial services
organizations
► Rationalization and enhancements in data, technology and reporting
► Enhanced analytics to support balance sheet optimization and strategic
planning given multiple binding constraints
► Implementation is complex, requiring sponsorship by the Board and executive
management, as well as cross-functional participation from Finance, Risk and
business lines.
3. Page 3
Traditional balance sheet management and current
challenges
This document contains information in summary form and is therefore intended for general guidance only. It is not
intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young
LLP nor any other member of the global Ernst & Young organization can accept any responsibility for loss
occasioned to any person acting or refraining from action as a result of any material in this document. On any
specific matter, reference should be made to the appropriate advisor.
4. Page 4
Traditional balance sheet management
► Performed by corporate treasury with a focus
on the banking book.
► Objective to fund plans delivered by business
lines and manage associated IRR and FX risks.
► Input, rather than the driver of strategic plans
► Product pricing and performance management
do not capture all liquidity risks and costs,
particularly contingent risks.
► Data lacks sufficient granularity and
frequency to meet emerging regulatory
expectations.
► Silo-based governance, organization, risk
analytics, data and technology infrastructure.
Long-Term
Funding
Trading Book Short-term
Funding
Banking Book
Core Capital
(Including Retained
Earnings)
CR
CR
MR
LR
IRRBB
LR
MR LR
Operating models in many organizations make it difficult to provide the Board and senior
management with a holistic view of the balance sheet. Silo-risk analysis can fail to capture inter-
dependencies across risk categories and may not fully test the resilience of a bank’s balance sheet.
5. Page 5
Traditional planning model
Strategic planning in many organizations does not allow sufficient two-way flow of information
between functions and focuses on aggregation of inputs, rather than dynamic analysis and
optimization.
Management Committee, Board of Directors
Risk Management
Asset Liability Committee
InterestRateRisk
LiquidityRisk
CreditRisk
OperationalRisk
OtherMaterialRisks
Funding
InvestmentPortfolioMgmt.
MaterialRiskAssessment
Capital
Planning
Stress
Testing
B/S Forecast I/S Forecast
Enterprise Risk Committee
TreasuryPlanning
Lines of Business
FundsTransferPricing
6. Page 6
Regulatory considerations for balance sheet management
The Regulatory reform landscape is complex and dynamic. Interrelated regulatory requirements
impact functional areas across the organization.
Balance Sheet
Management
FDIC IDI
Rule and
DFA 165(d)
resolution
plans
Basel “2.5”
trading
book capital
CCAR –
stress
testing and
capital
plans
US SIFI
Enhanced
prudential
standards
NPR
SR 10-1
Interagency
guidance
IRR
SR 11-7
Interagency
guidance
Model Risk
Basel III,
SR10-6, RN
10-57 on
Funding,
Liquidity
Risk
Funding &
Liquidity
Management
Cash
Management
Operations &
Technology
Capital
Management
Capital
Markets
Investment
Management
Finance
ALM &
Hedging
Capital
Management
Enterprise
Risk/CRO Credit Risk
Market Risk
Internal Audit
Lines of
Business
Financial
Planning
Living Will
7. Page 7
Gap to crisis
Capital and
liquidity
ratios
time
Stress
buffer
Recovery
zone
Resolution
Failure
threshold
Crisis
threshold
(capital or
liquidity
event)
Lower end
of
operating
range
Current
Capital/liquidi
ty ratios
Upper end
of
operating
range
Stress testing
Analyze potential
impact of stress
scenarios and risk
mitigation options
Further stress
testing
Identify potential
crisis/failure
scenarios;
demonstrate strength
of capital/liquidity
position
Recovery plan
Plan for potential
recovery actions to
address severe stresses
Resolution plan
Support efficient legal
entity resolution
activities after failure
Risk appetite calibration
The amount of risk that
the firm is willing to
accept given target
capital/liquidity position
Risk capacity analysis
The maximum amount of
risk that can be borne
given current
capital/liquidity levels
Business Planning requirements
Risk
appetite
inputs
Living
will
Target
operating
range
Increasing scope for analysis and decision making
Business decisions need to be evaluated and their implications considered not only in BAU or
Stress scenarios, but in the extreme stress (Recovery and Resolution) scenarios as well.
8. Page 8
Funding and liquidity strategies to address LCR binding constraint:
Overlay capital considerations:
Illustrative example: liquidity and capital considerations
► Strategy 3 may be the lowest-cost strategy today to achieve LCR compliance, but requires significant debt
issuance, indicates a low risk-appetite as leverage ratio becomes binding and weak return profile to the
shareholder
► Strategy 1 and Strategy 2 reduce risk-weighted assets but at the expense of negative carry
Strategy 1: shift investment portfolio mix Strategy 2: shift asset mix Strategy 3: balance sheet expansion
► Increase level 1 securities and reduce
LCR level 1 non-eligible securities
► Increase level 1 securities and
decrease loans
► Increase level 1 securities and issue
3-year long-term debt to fund the
security purchase
Investment portfolio security
yield:
3.1% Yield on loan portfolio: 4.5% 3-year note coupon
(treasury + 130-160 bps)
1.6%–1.9%
5-year treasury rate: 0.6% 5-year treasury rate: 0.6% 5-year treasury rate: 0.6%
Investment shift impact: 250 bps Asset shift impact: 390 bps Negative carry on level 1
assets
100 bps–
130 bps
► More complex situations would involve decisions between disparate portfolios across the entire balance sheet;
e.g., investing in mortgage loans vs. leveraged leases
9. Page 9
Need for a new strategic balance sheet management
operating model
This document contains information in summary form and is therefore intended for general guidance only. It is not
intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young
LLP nor any other member of the global Ernst & Young organization can accept any responsibility for loss
occasioned to any person acting or refraining from action as a result of any material in this document. On any
specific matter, reference should be made to the appropriate advisor.
10. Page 10
Capital planning Liquidity forecasting
Stress tests RRP Stress tests CFP
Risk profile: how much risk are we exposed to? Risk appetite: what risks should we take?
Credit Market
Operational
Liquidity
Reputational
New business and product approval
Measuring risk-based returns
Risk within strategic planning
Board-approved risk appetite
Internal controls
Data and IT capabilities
Enterprise risk
profile
• Enterprise-wide
view of risk
• Emerging risk
identification
Regulatory
constraints
• Minimum capital
and liquidity
ratios
• Other prudential
requirements
Linkage of risk-taking
and regulatory
requirements with
strategic goals
• Challenging business
environment
• Leverage ratio vs.
risk based capital
(RBC) continuum –
risk-return reward,
size of balance sheet
• Focus on counter-
cyclicality and tight
underwriting
• Trade-off between
higher liquidity
requirement,
earnings, leverage
and RWA
Aggregation
Concentrations
Correlation
Risk capacity: how much risk can we take?
Internal risk-based view of capital and liquidity
Regulatory minimum capital and liquidity
Integrated balance
sheet analysis
Enhanced balance sheet analytics and decision making
Resilience
constraints
• Internal
operating range
for risk and
capital
• Contingency and
recovery options
Optimizing balance sheet strategies considering regulatory constraints, risk appetite and business
objectives requires integrated and dynamic analysis.
11. Page 11
New operating model
Enhanced governance, functional, data and infrastructure capabilities
Board of directors and board-level risk committees
► Establish risk appetite and responsibility for risk governance and approval (e.g., approval of capital plan, establishment of liquidity risk
tolerance)
► Active and interventionist role for the board-level risk committee with respect to the oversight of management risk-taking
Risk functions (CRO)
► Capabilities to support enhanced reqmts. for:
► Enterprise risk monitoring, aggregation and reporting
capabilities and risk committee reporting
► Liquidity risk monitoring and reporting
► Daily counterparty exposure identification, calculation
and monitoring; monthly counterparty exposure
reporting
► Capital and liquidity stress testing
Finance functions (CFO)
► Capabilities to support enhanced requirements for:
► Liquidity management requirements — detailed cash flow
projections, monthly stress testing, contingency funding plan;
liquidity monitoring against limits including intraday liquidity
and collateral, formal documentation of assumptions
► Formal review of liquidity management effectiveness
► Increased regulatory reporting expectations — daily cash flow,
monthly reports on single counterparty exposures
► Capital plan and stress testing
Data management and IT infrastructure
► Build sustainable data provisioning and underlying architecture to support enhanced capabilities
► Significantly increase the granularity and timeliness of reporting (e.g., legal entity, daily). Develop single “golden” sources of data at
enterprise level. Focus on aggregation (inc. aggregate counterparty positions) and finance and risk data reconciliation
Executive management and business strategy
► Strategic analysis on the viability of certain products and activities against regulatory and market constraints
► Active role in investment decisions supporting regulatory spend (e.g., prioritization, first-mover advantage)
► Enterprise-level governance over implementation/transformation projects and workstreams
Liquidity risk
management
CP exposure
monitoring
Stress testing
Capital and
funding plans
Lines of business
► Shaping business strategy and implementation approach related to addressing the financial reform agenda
► Ability to assess businesses against multiple constraints — multiple risk-based capital ratios, liquidity ratio, leverage ratio — and business
performance metrics
Audit — Effectiveness of reform projects. Impact on audit universe, new business models and risk/compliance processes
Enterprise compliance — Ability to manage as an integrated, firm-wide management discipline
12. Page 12
The Scorecard approach for more complex tradeoffs
across entire balance sheet
VS.
Business Model
Asset Liability
Management
Regulatory Capital
Market and
Shareholder View
Loss Rates
+
1 +
Risk (Volatility and
Correlation)
PPE and NIAT
MORTGAGE SERVICING RIGHTS
PPE/OS = $X, NIAT/OS = $X (seasoned)
Short Payback
± Basel 1: 100% RW
Basel 2: Low given asset quality
Liabilities easily hedged with
balance guarantee swaps
+
+
-
+
- Basel 3: Punitive treatment (only 10%
allowed vs. 90% earlier)
High RoE
Short Payback
- Daily hedging using TBAs etc.
Hedging and Acct. operationally demanding
Natural alignment and natural hedge
with origination
Considered inferior collateral loans
Very Low: <1% (Through-the-Cycle)
+ Low volatility
Imperfect correlation with other assets
- Considered risky due to volatility
“Free” money
MtM volatility flows through earnings
±
SCORECARD
N/A
Natural hedge with HFI Portfolio
High volatility
±
2
1
2
4
3
4
PRIME AUTO ASSETS
Rank-ordered
+RoE and Economic
Profit
High: X% Average (post-hedge): Y%±3
Liquidity / Impact
on LCR, NSFR
+ Short dated; Relatively easy to sell
Impact on LCR using stable funding: X%
- Illiquid, difficult to dispose
Impact on LCR using stable funding: X%5
QuantitativeQualitative
±
► Balanced Scorecard articulates goals and constraints and provides transparency and objectivity in decision
making.
► Forms the basis for tradeoff decisions, allocating B/S and setting targets at high level LoB segments
► Composed of a few critical and meaningful metrics that do not change too frequently
Illustrative example
13. Page 13
Traceability to validate treasury infrastructure
Target operating model (TOM)
Outlines key functional
components and processes
Business requirements (BRD)
Describes the functional and
non-functional requirements
Balance sheet
Granular logical chart of
accounts
Data groupings
Logical grouping for data
requirements
Reporting requirements
Describes management and
regulatory requirements
considering target state for
reporting
Product hierarchy
Groups charts of accounts in
platform to optimize system
functionalities (e.g.,
dimensions)
Data requirements
Consolidates the data
elements needed to produce
management and regulatory
reporting
Solution design
End-to-end solution design
(sourcing to reporting)
Logical data model
End-to-end solution design
(sourcing to reporting)
Data dictionary
Description for product and
data elements
Business rules
Outlines functional and
technical rules
Business drivers
1. How do I know that business
requirements are complete and at the
right granularity?
2. How do key business inputs translate
into technical delivery and can
actually produce intended results?
3. How do I think about balance sheet
management, capital, funding and
liquidity in a structured way?
4. How do I ensure complete balance
sheet and product coverage?
Traceability benefits
1. Clear auditabillity from regulatory
requirements to solution
implementation
2. A structured approach to phasing
business benefits
3. Comprehensive balance sheet and
product coverage
4. Clear mapping to delivery inputs
(e.g., data model, interfaces, testing)
14. Page 14
Traceability example
1. Business requirement: Automated reporting solution capable of
producing the Fed 4G Report
2. Reporting line item: 9.10 Cash Balance at Federal Reserve
3. Business rule
Product Code = Interest Earning Balance with Other Banks OR Non
Interest Earning Balance with Other Banks
AND Party Long Name = Central bank AND …
5. SQL to fulfill Line 9.10
SELECT: Balance Amount
FROM: Position Fact, Instrument Dimension,
Party Dimension, Purpose Dimension
WHERE
(Instrument Dimension.Product Code =
Interest Earning Balance with Other Banks OR
Non-Interest Earning Balance with Other
Banks) AND …
4. Data definition
Product Code
Party Long Name
Balance Amount
Business/regulatory needs Demonstrated linkage to reporting solutions
Business requirements and data requirements are not enough; traceability formally documents the
mapping of requirements to infrastructure and the reports generated by treasury.
15. Page 15
Accountability and governance
Treasury data steward establishes
governing body, roles and
accountabilities and defines data
reconciliation strategy
Data provisioning (sourcing)
Consolidate data sourcing from
LOB by product group through
identification of authorized
sources, validation and gap closure;
elimination of redundancy; and
alignment to enterprise data
provisioning points
Data standardization, cleansing and storage
► Integrated data model leveraging common
data sources for market and security master
data
► Scalable data model that supports
incremental functional components
► Multiple periods of stored production data
for user access
► Controlled management of standard
reference data, metadata, reconciliation and
data model
Analytics and reporting
► Central function to support internal and
external reporting of treasury risk
► Flexibility to compute and/or import
contractual, behavioral and stressed cash
flows for internal risk or statutory/
regulatory reporting
► Shared stress-testing strategies and
scenario analysis capabilities across risk
categories
► Multi-dimensional reporting with drill-down
capabilities at the most granular level and
ability to view risk measures across line of
business, legal entities, currencies and
counterparties
High-level target state architecture
Traceability
Measurement
system
Treasury, risk
and finance
users
Data management steward
Upstream accountability of data Policy and standards Reconciliation, testing and attestation
Line of business } Provisioning point
Line of business } Provisioning point
Line of business } Provisioning point
Loans
Debt/hedges
Traded products
Deposits
Off-balance
sheet
Treasury data
warehouse
Analytical/
calculation engines
Capital
Planning
ALM
Liquidity
Stress testing
Cash flows
Analytics/
reporting framework
Regulatory
reporting
MIS tools
Data
visualization
Report
generation Personnel
Personnel
Personnel
4321
1
2 3 3 4 4
16. Page 16
Program approach and governance
A structured approach to defining a target state operating model and implementation road map
Iterative target state development methodology
Strategic
architecture
Functional and IT
road map
Gap assessment
Business strategy
Conduct applicability
assessment of
regulations
Tactical
architecture
Inputs
Perform
current state
assessment
Perform
gap assessment
Develop
target state
Establish ongoing
management
operating model
Leading practice
considerations and
benchmarking
BAU target
operating model
Strategic treasury improvement program governance
Strategic
functional and IT
road map
Functional and data
requirements
Target
operating model
► The creation of a program governance structure provides oversight to planning and implementation activities,
including fine-tuning the approach due to regulatory updates and new requirements. It also provides a framework
to evaluate tactical initiatives in terms of the planned strategic architecture limiting rework.
Increased clarity of
regulations and
new regulations
As new
requirements
emerge or
existing ones
change, the
roadmap and
target state
will update
iteratively
throughout
this process.
Outputs
Strategic
architecture
Interim
architecture
17. Page 17
Benefits of strategic balance sheet management
► Allows better management of the firm in this complex environment with
changing competitive and regulatory landscape.
► Facilitates tight integration of key stakeholders, early and all along the decision
making process.
► Makes possible dynamic analysis and reporting across risk factors using
strategic infrastructure.
► Facilitates optimization across entire balance sheet, considering multiple
constraints and strategic goals.
► Enhances alignment of LoB behavior with strategic goals.
► Enhances profitability by optimizing funding and IT costs.
► Enables stronger governance of Balance Sheet decisions and performance
evaluation and enhance accountability by clarifying roles and responsibilities.
► Facilitates key supervisory risk management objectives.