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

2. Asset Liability Challenges for Treasury
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

3. 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

4. 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

5. 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

6. 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

7. 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)
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

8. 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

9. 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

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