Asset and liability management (ALM) is the process of managing and optimizing the assets and cash flows that financial institutions (FIs) use to meet their obligations. This process of management and optimization covers a spectrum of market risks and their sprawling interrelationships, as well as key product and customer dynamics. The process and systems involved in ALM are evolving: regulations, processes of integration and emerging industry standards are all converging to create a new complex and maturing ALM framework. FIs’ systems have evolved in response to several forces shaping modern ALM practices and heightening their complexity. Confronted with diverse regulatory challenges and sometimes competing standards and rules – alongside market volatility and the availability of new technology resources – FIs are working toward a new ALM standard.
In it’s report titled – ‘ALM Solutions 2021 – Market and Vendor Landscape’, Chartis has divided the overarching category of ALM into four interrelated and interlinked areas:
- ALM itself: the analytical and quantitative framework that characterizes asset and liability management.
- Funds transfer pricing (FTP) and profitability analysis, including the construction and use of curves for pricing.
- Liquidity risk management (LRM), and specifically that based on Basel reporting requirements.
- Capital and balance sheet optimization: optimization engines with embedded scenario and simulation frameworks, as well as business planning and analysis processes.
The report also covers the growing importance and prevalence of an integrated approach to ALM as well as the diversity that exists within ALM requirements and how numerous vendors in the space worldwide are approaching towards it. To draw a conclusion, the report uses Chartis’ RiskTech Quadrant© to explain the structure of the market. The RiskTech Quadrant© uses a comprehensive methodology of in-depth independent research and a clear scoring system to explain which technology solutions meet an organization’s needs. The RiskTech Quadrant© does not simply describe one technology solution as the best risk-management solution; rather, it has a sophisticated ranking methodology to explain which solutions would be best for buyers, depending on their implementation strategies.
Proud moment for IntellectChartis has profiled Intellect Design Arena in the ‘Best of Breed’ category in the space of ALM solution providers worldwide. Intellect scores high in the areas of Asset Liability Management solution capabilities, Fund Transfer Pricing (FTP), Liquidity Risk Management (LRM) and ‘Point Solution’ for capital and balance sheet optimization and is in a good position and well equipped to provide the best-in-class ALM solutions to financial institutions in comparison to most of the vendors globally.
Vendors are responding to the growing demand for strategic ALM, increasing their analytical infrastructure either by building it internally or partnering with a relevant specialist. Firms are also making substantial investments in analytics, and building up their stress testing, behavioral modeling and interest-rate simulation functionality. Many have also been working toward a full interest-rate simulation framework. Nevertheless, the level of investment and success vendors have had in competing in the context of the new ALM standard varies considerably.