The core concepts of Asset Liability Management (ALM) and Balance Sheet Management have remained fairly stable in the past, but with evolving regulations Basel III redefines the global standards for bank capital, liquidity and leverage and has a profound impact on how banks manage or optimize their balance sheets. Banks across the world are shifting their focus to liquidity risk and the ability to integrate data across banking and trading books on a real-time basis.
Basel III establishes new liquidity standards that drive new balance sheet strategies to limit illiquid assets, restrict wholesale/unstable sources of funding, and manage higher funding costs. The regulations include specific requirements on how the banks should categorize their HQLA assets, net cash flows, etc. It specifies new capital target ratios and new standards for short-term funding (Liquidity Coverage Ratio) and long-term funding (Net Stable Funding Ratio). This calls for integration of balance sheet management across capital, liquidity stress testing and planning.
Both regulators and banks are focussing more on the areas of stress testing and reporting frameworks. There is a need for banks to develop scenario analysis frameworks, which support user-defined parameters. Better scenario analysis frameworks make it easier to perform stress tests covering various combinations such as liquidity adjustments, behavioral analysis, assumptions, hypothetical deals, custom market data, etc. Based on the results of stress tests, banks should be able to develop and implement contingency plans to ensure that they continue to meet, the liquidity rules even under severe stress scenarios.
Funds Transfer Pricing (FTP) is a potent tool that, when handled correctly, can enable banks to weather business risks more effectively and provide the right insights and incentives to steer the balance sheet to more profitable and less turbulent waters.
Intellect ALM / FTP solution empowers banks to pinpoint areas where the best profit returns can be achieved and also highlights risk sensitivity within the bank's portfolio.
- Single integrated ALM / FTP solution that provides coverage across a bank's trading and banking book
- Comprehensive analysis platform for rapid adoption of new accounting, risk analysis and regulatory reporting requirements, facilitating integration of data from several financial and accounting systems
- Flexibility in multiple aspects such as tenor definitions, products, hierarchies and cash flow models – helps in meeting both internal reporting and regulatory reporting requirements
- Equipped with a sophisticated scenario analysis tool that is augmented by a wide variety of interest rate risk and liquidity risk reports
- Provides a comprehensive limit monitoring framework, along with a robust data integration and management infrastructure
- Enables a bank to pinpoint performance areas across its balance sheet and highlight P&L opportunities at various levels (division, branch, portfolio down to trade and transaction level)
- Solution powered by ‘ready to deploy’ monitoring tools, compliant with BCBS238 guidelines covering key liquidity ratios (LCR, NSFR) and analytics related to both short term and long term liquidity (including maturity mismatch, impact of behavioral scenarios, capital deployment across products, etc.)