CertBALM®

Unit 1 constitutes an introduction to banking from an ALM perspective. It outlines what banks do, the products they provide, the markets in which they operate and their broader role in the economy. It also introduces the reader to the risks that banks inevitably run and examines how, in particular, the Treasury and ALM functions seek to mitigate these risks. Finally, it provides a short introduction to banking regulation covering its purposes and structure.

The principal objective of Unit 1 is to equip students with all the necessary background information prior to their proceeding to the more specialised units.

Unit 2 covers the key principles of capital management for a Treasury function. The Unit introduces what capital is and why it is crucial for appropriate risk management of the bank itself and the wider financial system and economy. It outlines the various types of capital and the key difference between accounting capital and regulatory capital, discussing concepts of going concern and gone concern capital.

The Unit then considers the legislation on Bank Recovery and Resolution and the new forms of bail in debt that have been developed since the Global Financial Crisis to better manager failing banks.

Finally, the Unit discusses the benefits and challenges of enterprise-wide stress testing, with a focus on “concurrent” stress testing exercises run by the Bank of England, as well as CCAR in the US and the EBA-coordinated stress tests in Europe. This is essential to understanding risks within the balance sheet and the capital required to mitigate these risks during a business cycle.

This Unit addresses the increasingly important subject of liquidity and funding risk, which has been at the centre of market and regulatory focus since the financial crisis of 2007-08. It describes the fundamental nature of liquidity and funding risk and the risk this causes to banks.

Students are introduced to methodologies and metrics for both identifying and managing liquidity and funding risk. Standard regulator methodologies, by which banks are required to comply with as a minimum standard, are outlined in depth, but students are encouraged to understand and be able to challenge the sensitivities to assumptions that are implicit within these models.

The Unit continues with an introduction to the overall management and governance framework around liquidity and funding.

The Unit concludes with a chapter on planning and stress testing. This area in particular shows the connections between Unit 3 and Units 2 and 4. It is the interactions between these areas that are at the heart of the overall balance sheet management process and an important reason for taking this course.

While market risk is often thought of as primarily a trading book risk it, and particularly interest rate risk, can actually have a far greater financial impact on the banking book. This is because net interest income is the principal source of income for most banks and, therefore, any threat to this resulting from changes to the level of external interest rates needs to be measured and managed.

Unit 4 describes, from first principles, the nature of interest rate and other market risks and then proceeds to explain, with the aid of simple examples, the various ways in which these are quantified and controlled in the banking book.

The Unit concludes with a review of the current regulatory requirements and, in particular, how various jurisdictions are now implementing the Basel Committee Standards on IRRBB originally published in 2016.

This Unit addresses how ALM fits together and how new regulations are changing the way banking is governed, organised, structured and valued.

Firstly, it describes the way banks have organised their ALM operations in the context of the fundamental changes in regulation and markets following the financial crisis of 2008.

The Unit covers the intersection between the new regulations and market environment and how it has changed the way banking is governed, organised, valued, structured and conducted.