ALM models: other services

Consultancy services on the design and governance of ALM models, in the bank's managerial environment and within the Model Risk Management (MRM) regulatory framework; modelling services as such.

Design and modelling

In addition to the new dynamic models that underpin net interest margin sensitivity calculations, our model design and/or production services also cover traditional static models, both for ex nihilo design and for updating and recalibration.

In addition to sight deposits, whether interest-bearing or not, which are highly sensitive to interest-rate and liquidity risks and are increasingly constrained by regulation (see European Banking Authority (EBA) - IRRBB: 5-year cap on Non-Maturing Deposits), all balance sheet assets and liabilities are covered, both commercial (loans and deposits) and sterile (equity, provisions, fixed assets, cash, etc.).

The phenomena of behavioural optionality affecting, in particular, early repayment of fixed-rate mortgages, as well as savings accounts and home savings loans, are obviously taken into account.

Governance

Still more important than the relevance of hedging decisions (debt issuances, interest rate swaps, etc.) and risk indicator limit policies, the quality of ALM models is a determining factor in a bank's financial performance. Much more than an attempt - albeit an illusory one - to accurately represent customer behaviour, an ALM model is above all a management strategy, adapted to that behaviour.

Given the implications, far from being confined to the domain of a few structural risk management specialists, it is first and foremost a matter for the business line managers and senior management. The latter must be the real decision-makers, having been informed, in a language they understand, of the profitability and risk issues involved in choosing a model.

Lastly, model risk, the scope of which increases considerably in a management based on the sensitivity of net interest margin, must be part of the MRM (Model Risk Management) regulatory framework.