Asset Liability Challenges for Treasury Manfred Wiebogen ACI Croatia 16th ACI FMA Annual Assembly 12th May 2019

Asset Liability Challenges for Treasury 03.06.2019 Asset Liability Challenges for Treasury Challenge 1 FRTB – Fundamental Review of the Trading Book Challenge 2 ILAAP – Internal Liquidity Adequacy Assessment Process Challenge 3 IRRBB – Interest Rate Risk in the Banking Book Asset Liability Challenges for Treasury 03.06.2019

Challenge 1 / The evolution of the regulatory Treatment of the Trading Book 1996 2009 2010 2022 Market Risk Amendment Basel 2.5 Basel 3 CRR 2 Fundamental Review of the Trading book (FRTB) Equity requirement for market risks Stressed VaR CVA* risk for replacement risk Strict separation Trading book / Banking book Internal Models with 99% confidence level and 10 days holding period IRC** & CRM*** Expected Shortfall as risk measure Standard Model as Floor for Equity Requirement Increased equity requirements over time lead to falling Return on Equity (RoE) for Trading positions and reduce the attractiveness of the trading books *) CVA = Credit Value Adjustment **) IRC = Incremental Risk Charge ***) CRM = Comprehensive Risk Measure Asset Liability Challenges for Treasury 03.06.2019

Liquidity Management is getting more and more demanding: Challenge 2 / Liquidity management Target: Ensuring that the bank has enough liquidity buffers/counterbalancing capacity in case of stress to be able to survive at least one month Compliance Capital Commitments Stress Scenarios Processes Limits Liquidity-Buffer Counter-Balancing Capacity Pillar 1: LCR*; NSFR** Pillar 2: ILAAP*** Liquidity Management is getting more and more demanding: Additional resources due to process requirements (ILAAP) liquidity transformation as a source of income in ALM managing LCR HLAs in a profitable way *) LCR = Liquidity Coverage Ratio **) NSFR = Net Stable Funding Ratio ***) ILAAP = Internal Liquidity Adequacy Assessment Process Asset Liability Challenges for Treasury 03.06.2019

Challenge 3 / Interest Risk Management The legislator tightened the requirements for interest rate risk management in the banking book The interest rate risks in the trading books tend to be reduced and partly transferred to the classic ALM banking book Negative / low-interest phase produces pressure on the interest rate risk result in ALM and leads to new risks (keyword “implicit customer floors”) The evolution of the regulatory environment for interest rate risk 10/2006 05/2015 04/2016 11/2016 10/2017 07/2018 01/2016 application 01/2018 application 06/2019 application 12/2019 application Major banks Small banks CEBS Guideline EBA Guidelines (EBA/GL/2015/08 CP EBA Guidelines (EBA/CP/2017/19) EBA Guidelines (EBA/GL/2018/02 BCBS 368 Draft „CRR2/CRDV“ IRRBB - Interest Rate Risk in the Banking Book Asset Liability Challenges for Treasury 03.06.2019

Treasury needs ALM – ALM needs Treasury Asset Liability Management needs the technical knowledge of Treasury Regulation and difficult money / capital market conditions need in-depth instruments know how „to the basis point“ in order to make ALM strategies profitable Treasury activities are shrinking and tend to be integrated into ALM Asset Liability Challenges for Treasury 03.06.2019

ALM Education provided through ACI Croatia Interest Risk Management in the Banking Book i28 Online Simulation Enjoy the animated Tutorial and Beat the Benchmark (Champagne) https://i28.financetrainer.com ALM Professional Cyber*School – Interest Risk Know how and opportunity for a Finance Trainer Certification (University of Advanced Studies/Vienna) Free ACI Croatia Webinar and Simulation (Champagne for the winner) 15th May – 1 p.m. – register via ACI homepage or directly at the Assembly Asset Liability Challenges for Treasury 03.06.2019

i28 Online Simulation Level 1.1 – The forecast shows an interest rate increase within the next 12 months (purple line). Withou a reaction, the bank can expect losses – What could you do to improve the result. Task 1: Improve your interest gap contribution by 0,9 Mio EUR.- To do so, you must enter an asset or liability position of exactly 100 Mio EUR in the term bands 3 Months or 10 years. Asset Liability Challenges for Treasury 03.06.2019

Finance Trainer Dealing Certificate Preparation by ACI Croatia 2 days prep workshop July 2019; register via ACI Croatia homepage or directly at the Assembly Dealing Certificate Cyber*School to have an optimal chance to pass the exam (Pass Ratio of FT Candidates: about 86%) Register via ACI Croatia homepage homepage or directly at the Assembly to get the special rate Asset Liability Challenges for Treasury 03.06.2019

Visit our booth in front of the conference room I am happy to meet you!