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.
- 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.