The foundation of the Asset Liability Management (ALM) process.
It starts with data. Without complete and accurate data on all aspects of your balance sheet, the foundation of your ALM model, and therefore the entire ALCO process, is at risk. Quality data ensures you have a solid representation of your current risk profile and that strategic decisions are derived from an accurate current position assessment. DCG analysts spend significant time thoroughly analyzing the data before the modeling process even begins.
A comprehensive model encompasses a number of variables, many of which have been re-emphasized in recent regulatory pronouncements. Instrument level modeling is essential in this day and age. The use of call report data won’t provide you with the accurate assessment necessary to maximize your ALCO process.
Comprehensive modeling involves:
- A model that extends beyond two years (preferably five to seven years)
- Inclusion of alternative rate scenarios and yield curve movements
- Simulation of what-if scenarios
- Accurate modeling of optionality within the balance sheet
These are key pieces of the “Wholistic” modeling process and should be included in your ALM model to ensure you have a solid foundation upon which to make your important strategic decisions.