Asset Liability Management Best Practices

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Asset Liability Management best practices refined from 30 years of ALM experience.

DCG works with every regulatory agency and all types of institutions with assets ranging from $30 million to $45 billion across the country. Our insights are formed from deep banking experience, ongoing client relationships, frequent discussions with regulators and continuous monitoring of regulatory oversight.

In fact, many of the new regulatory guidelines from 2010 and 2011 have been practiced by DCG in our ALM Advisory Service and ALM Validation Services for many years, such as:

  • Comprehensive Modeling: longer-term NII simulation periods, rate changes >200bp, static and dynamic balance sheets and non-parallel yield curves.
  • Rigorous Assumptions: in-depth discussion with pertinent parties on current business practices on a quarterly basis, providing a well-documented set of all model assumptions to review with ALCO/board and examiners.
  • Risk Assessment: analyzing your current risk exposure as it relates to policy limits, stress testing and back-testing of simulation results.
  • Strategy Development: a process must be in place to develop and document every strategy, including the risk/reward tradeoff, even in the case of no action.
  • ALCO Action: ALCO is to be a proactive process involving all business areas. Action plans for board initiatives are expected. Recommendations should be free of unintended bias.
  • Contingency Planning: a two-pronged approach. DCG helps develop and implement contingency planning for liquidity needs and we are always available to help with modeling/analysis/strategic discussions.
  • Board Involvement: “…the boards of directors should understand and be regularly informed about the level and trend of their institutions’ IRR exposure.” — Advisory on Interest Rate Risk Management, January 6, 2010
  • Customized Policies: your policies need to be inclusive of all business activities (ALM, investments, borrowing, liquidity/contingency liquidity, hedging) and accurately reflect the tolerances of the bank or credit union.

These best practices are embodied by the DCG “Wholistic” ALCO process.