Asset and liability management

Your challenge

In an economic environment with increasing uncertainties and a regulatory context that is imposing ever higher demands on financial institutions, future-proof asset and liability management is key. 

Important drivers for change
The multitude of factors requires a more mature ALM setup. These are some of the most import drivers:

• Low interest rates and margin compression: The prolonged low interest rate environment and increased competition from not only traditional players in the market impose pressure on margins, and in turn require best in class asset and liability models in order to quantify and mitigate ALM related risks.
• Changes in client behaviour: Both COVID 19 as well as low rates have changed client behaviour. Accurately incorporating client behaviour and the existence of potential client rate floors on assets and liabilities in value and earnings metrics as well as in the risk transfer process is key.
• IBOR transition: Accommodating the reference rate transition into your metrics, reports, models and systems and understanding the impact on your balance sheet requires a better understanding of your positions.
• New regulatory guidance: Preparing for compliance with upcoming regulatory requirements around interest rate risk in the banking book (IRRBB), capital requirements regulation (CRR2), and the regulatory stress tests.

Our solution

Our ALM solution is structured around three core service lines:

1. Integrated risk management
We focus on the entire chain of financial risk management, from risk materiality assessments to risk-based decision making, with a focus on:

• ICAAP and ILAAP related services from reviewing to setting up new ICAAPs and ILAAPs.
• Developing stress test frameworks and executing stress tests.
• Economic Capital framework improvements.
• Strategic business analysis from a risk perspective.

2. ALM methodology
We support your organisation with a full range of activities that are performed around the model lifecycle. The core focus is on model development, model validation as well as the translation of model techniques and outcomes into the wider organisation. Models include client behaviour models, valuation and replication models, economic capital models and the calculation of the metrics related to the economic value of equity and net interest income.

3. Data and technology
We focus on activities related to sourcing, preparing and storing data required for quantitative and qualitative assessments for various balance sheet items. Also, we help with the implementation of the ALM models and reports into centralised systems.

Why Deloitte?

Deloitte’s ALM team has an in-depth understanding and extensive experience in the field of asset and liability management. In particular, Deloitte has helped various clients to develop, validate and maintain an efficient model landscape for ALM, to use those models in their capital and liquidity plans, and to help them meet the increasingly demanding regulatory requirements. Deloitte’s international footprint in the ALM domain and our broad coverage in terms of services allow us to bring you the best practices from the financial industry around the globe.

A selection of credentials within our ALM domain includes:

• Development of a regulatory roadmap with milestones and gap analysis to implement regulatory topics including SREP (ICAAP and ILAAP), IRRBB, and stress testing.
• Improvement of regulatory reporting to ensure that regulatory reports (such as LCR, NSFR, and COREP) meet regulatory requirements.
• Development, validation and implementation of ICAAP and ILAAP related models for the full balance sheet including non-maturing deposits, mortgages, term loans, CSA's and markets securities.
• Supporting ALM vendor selection processes combining our experience and knowledge of best-in-class vendors with a thorough understanding of ALM needs.
  
• Application of machine learning in prepayment and deposit modelling to complement traditional models used by financial institutions.
• Construction of data warehouses containing account level data for liabilities sourced from a multitude of business lines and entities.
• Implementation of (behavioural) models and related metrics in QRM and other vendor systems, including the application of runtime optimisation techniques.

Please feel free to contact our Asset and Liability Management team to discover how Deloitte can help your organisation with a future-proof asset and liability management framework.