Asset & Liability management is the process of managing the use of assets and cash flows to reduce the firm’s risk of loss from not paying a liability on time. Well-managed assets and liabilities increase business profits. The asset/liability management process is typically applied to bank loan portfolios and pension plans. It also involves the economic value of equity.
Asset & Liability Management
Architecture and Advisory
- Operational Excellence through Data Governance
- Regulatory (CCAR, FRTB, Dodd-Frank) Best Practices
- Reporting and Visualization
- On-Premises vs Cloud Architecture
- Software Application implementation
- IT Upgrade and Maintenance planning
- SOFR as LIBOR replacement
Technical/Functional Design
- Interest Rate Risk (IRR) Modelling
- Funds Transfer Pricing (FTP)
- Capital Planning
- Stress Testing
- Behavioral and Credit Loss Models
- Develop and Document Change Management Processes
- Adhere to Model Risk Policies, Audit Requirements, and Corporate Governess
- Dashboards and Reports
Implementation and Training
- Work closely with IT and Business resources to properly align project planning.
- Provide functional and technical training to provide expedited time to production
Post-implementation support
- Monitor and collaborate with IT and Business to provide Enterprise quality implementations.
- Work with our ALM software partners to make sure systems are up to date, secure and highly performant.
Upgrade, Scalability, and Management
- Develop actionable technology roadmaps to keep systems fully managed and available.
- Monitor HPC for scaleability for on premisis.
- Monitor Cloud implementations for auto-scalability and availability.
Risk Management is central to the way a financial institution works. Building the elements of risk management into a consistent and effective framework is a challenge for many firms. The current developments on the financial markets have emphasized the necessity for more stringent supervision of banks and their risk management activities.
Alongside this, regulators are asking firms to perform increasingly robust stress testing in order to assess the range of scenarios that may hit.
The complexity of such stress tests is compounded by the fact that, under QRM, capital requirements for many firms could rise substantially during the downturn. Regulators are challenging firms to increasingly involve senior management in developing and reviewing stress testing and to embed this within the day-to-day running of the business.
At OPEN TECHNOLOGY SOLUTIONS we are regularly working with banks and regulators in both the developed and emerging markets and are proud of our reputation for delivering high quality advisory, implementation services and training to meet their needs. QRM and its successor papers raised the bar for risk management in many firms. We regularly assist firms to implement QRM together with BASEL III and to achieve their program objectives addressing the key issues of risk, governance and the development of a risk management framework, the pillar I requirements for credit, market and operational risk; and the pillar II requirements including ICAAP developments. Working with management we can assist with the implementation of practical solutions that add value to the business.
Whatever new regulatory framework emerges, soundly based banks with proper supervision and management systems and those which actually generate real profits, will be best placed to take advantage of the full upswing when it eventually arrives. The strong – and not necessarily the largest will take over the weak and underperforming. Where will your bank be when this occurs?
The Banking and Financial Services industry has undergone significant transformation in various critical business processes like risk management practices, supervisory approaches, and capital requirement assessments. Since the introduction of Basel II Accord, Consolidation, Advanced Risk Management techniques, Data Management and Reporting models have evolved as a major concern.
Pillar III of Basel II Accord complements the minimum capital requirements (Pillar I) and the supervisory review process (Pillar II). It features Market Discipline that requires banks to disclose essential information regarding their capital allocation and the risks they take beyond current financial reporting guidelines.
Structure of Pillar II
When considering the second Pillar and its influence on regulated institutions, a distinction needs to be made between its two major components: the ICAAP (Internal Capital Adequacy Assessment Process) and the SREP (Supervisory Review Evaluation Process).
The SREP is reserved for the regulator, defines said institution’s regulatory review activities, and may take rather different forms depending on the jurisdiction – and, as such, has limited influence on banks’ risk management activities. The ICAAP, on the other hand, carries great importance for banks since it assesses their capital adequacy levels based on their indigenous complexity and risk exposures. Hence, the ICAAP is usually described as a process owned by the bank and reviewed by the regulator as part of the SREP. Banks usually focus on the ICAAP side in their implementation of Pillar II solutions.
Outcome of ICAAP Reviews
Regulators use the outcome of ICAAP reviews to establish the level of capital requirements and, to the extent necessary, of additional supervisory actions.
One of the great challenges of modern-day bank management is assessing a bank’s true economic risk profile, its alignment with board oversight duties, management actions and risk management activities, and coherent communication to key stakeholders such as owners and investors, regulators, bank personnel or business partners.
The present financial crisis has illustrated how institutions that neglected this aspect have suffered not only in terms of their share prices, but – even more importantly – also in their daily business activities by losing future earnings through the erosion of client bases and the loss of funding and liquidity sources.
From an economic perspective, the ICAAP greatly supports banks’ governing bodies in conducting a thorough analysis of banks’ economic risk profiles, assessing the influence of economic stress situations, and helping prepare for such stress situations. Based on this assessment, banks are much better prepared to weather future storms and to communicate a coherent business and risk profile that will not disappoint the market and other outside parties.
Basel III targets a reform of the existing Basel II and 2.5 frameworks, taking into account previous criticism of the framework and its shortcomings with regard to capital adequacy and in terms of addressing the lack of sufficient stable liquidity and funding positions. The final text of Basel III was published in December 2010. As with Basel II, the transfer of the framework into binding national regulation falls within the competency of national regulators.
The reform addresses the following levels of regulation:
Bank-level, microprudential
regulation which will help to raise the resilience of individual banking institutions to periods of stress
Macroprudential
regulation of system-wide risks that can build up across the banking sector as well as the procyclical amplification of these risks over time
To achieve these targets, the regulatory capital requirements have been tightened by reforming the risk weights to be applied, increasing the asset positions to be deducted from capital and through an envisaged strengthening of the capital basis (enlarged capital buffer and increased qualitative requirements regarding eligible capital). Additionally, new regulatory instruments have been introduced, namely liquidity and leverage ratios. The enhanced capital requirements and the expansion of the regulations to additional fields of business activities and risk management are intended to ad- dress the main loss drivers of the past crisis.
The challenges involved in implementing Basel III into a bank’s organization and considering its impact on business are manifold. The fact that different risk aspects and business activities are affected and different approaches are used for capital calculation (risk-weighted calculation versus risk-neutral view) makes the implementation complex. Efforts to work towards a fully fledged and well adapted solution will not only call on input from risk management but also several other departments. For example, it will be necessary to consult with finance & accounting, IT services, data management services, tax, trading operations, etc.
A timely and structured project set-up will be crucial in order to identify all areas of activities and aspects to be considered. The challenge lies not only in the complexity of the regulatory requirements, but also in the implementation itself, the impact on business activities, the interaction and coordination of involved parties and the timely allocation of the resources needed (capital and manpower).
Basel II & III compliance programs enhances your enterprise risk management processes, models and systems, and integrates them with the rest of the organization, providing a more holistic view of your risk exposure.
However, Basel compliance brings along a host of challenges. These stem from various factors like inadequate data spread across the organization, and disparate systems and processes. The issues are only compounded for multinational banks, as their branches and subsidiaries are subjected to varied home/ host regulatory requirements. Along with this, adopting an advanced approach to leverage benefits, poses questions of infrastructure scalability and data credibility.
OPEN TECHNOLOGY SOLUTIONS helps you overcome these issues and provides complete guidance for your Basel II implementation process. Our robust implementation framework is based on industry best practices and addresses key challenges in end-to-end implementation. With our services, you can look forward to a seamless and agile implementation, and support in embracing advanced risk management approaches.
OPEN TECHNOLOGY SOLUTIONS brings to the engagement its vast domain expertise, which spans the entire risk management arena. We also have a dedicated team comprising Basel specialists, and alliances with global product vendors to meet your specific requirements. We help realize greater value from your Basel initiatives with our:
Strong data management capabilities supported by robust framework. We can handle complex and large data management programs, and also have an expert Center of Excellence (CoE) dedicated for data management and business intelligence technologies;
Modeling expertise & Risk Analytics, which comprises risk measures modeling and model validation;
Dedicated Assurance Services that focuses on providing independent Testing and Quality Assurance (QA) services to help you build test strategies that align well with business strategies;
Open Technology Solutions supports banks across their complete Basel implementation life-cycle through the following service offerings:
Risk assessment and analysis
Control design and assessment
Loss Tracking and Key Risk Indicators (KRIs) Issue Management and Remediation
Internal Audit
Technical project planning, management, system design and implementation of Basel II compliant processes and systems
Experience in system integration and process mapping to Basel II business standards utilizing SAS, Oracle, and Informatica
In-depth expert-level knowledge in system implementation and process customizations of Oracle Reveleus, Moody’s Fermat integrated risk and performance management software, as well as Moody’s Risk Frontier credit portfolio management and economic capital.
Moody’s Analytics
Risk assessment and analysis
Control design and assessment
Loss Tracking and Key Risk Indicators (KRIs) Issue Management and Remediation
Internal Audit
Technical project planning, management, system design and implementation of Basel II compliant processes and systems
Experience in system integration and process mapping to Basel II business standards utilizing SAS, Oracle, and Informatica
In-depth expert-level knowledge in system implementation and process customizations of Oracle Reveleus, Moody’s Fermat integrated risk and performance management software, as well as Moody’s Risk Frontier credit portfolio management and economic capital.