Our approach to ALM allows decision-makers to not just identify risk, but uncover opportunity.
Experience the benefits of decision information in real-time…
- Consultants working as an extension of your team to give you real-time visualization of changes in your profitability profiles as the team discusses options for shifting the balance sheet and/or business model.
- See profitability profiles by asset categories and combinations
of categories in different rate environments to help inform pricing
and stimulate discussions on testing various shifts in the balance sheet and
- Quickly and easily see the profitability new business needs to contribute in order to achieve earnings and capital goals and offset existing risks. This helps decision-makers link strategy, desired financial performance, and risk tolerance.
- A streamlined approach to incorporate key components of your strategic capital requirements to help you determine your optimal range of capital. If you have not gone through a process to identify and quantify the components of your strategic capital requirements, including key risks, beyond interest rate risk, (e.g. credit, and liquidity risks) and opportunities, we can help you with that process and quantification. Understanding the optimal range of capital helps boards and managements more effectively navigate through opportunities and uncertainties while remaining highly competitive.
- Engaging reviews and discussions of results specifically designed for your participants, including discussion of what we are seeing in the industry – so engaging that participants are able to have dialogue and talk through helpful what-ifs that our consultants can run live.
A few things included in our service:
- Quarterly or monthly simulations of long-term profitability and capital strength, which include automatic twists of yield curves under a wide-range of rate conditions as well as parallel shifts.
- NEV quarterly or monthly, if desired, to support requirements for derivatives.
- Stress tests of key assumptions, such as deposit sensitivity and prepayment speeds.
- Customized annual onsite visit- Whether you want ALM education for various audiences, to review ALM results, dig deeper into your drivers of profitability and risk, or test a bunch of ideas as you are sitting with your team discussing them, we will travel to your organization and deliver on your individualized needs.
We can customize our services to meet your objectives by offering:
Anytime What-Ifs and Visualization Tool
Imagine having the best of both worlds. At your fingertips, you have the ability to easily test ideas and do other What-Ifs, so fast they can even be done during a meeting.
If you want an ALM consultant to help you think things through, just pick up the phone or send an email to our team of ALM professionals and request a discussion. If you are pressed for time you can ask the consultants to run the What-Ifs that you want or need.
In either case, the visualization capabilities and intuitive dashboards make digesting and analyzing results much easier than scrolling through a ton of numbers. It is easy to drill down to gain more insights to help hone in on what is driving profitability and the results in various environments.
The faster you gain these insights, the faster you can make decisions. This can help your institution gain a competitive edge.
Too much liquidity can stifle business opportunities and too little can threaten competitive position and possibly viability.
Proactive liquidity management is becoming more critical as rapid competitive shifts continue. Consumers are more open to the expanding alternatives to put their money to work for them. A key objective of liquidity management is to avoid major interruptions to your business model strategy by having to acquire funds at excessive cost.
To support this objective, decision-makers need to augment their current point-in-time view by having a strategic outlook when managing liquidity.
Our liquidity analysis service is forward-looking and dynamic. It helps decision-makers easily see how well they are positioned to meet their strategic liquidity requirements and balance external stressors.
In addition to this comprehensive view, our consultants can help decision-makers think through establishing liquidity triggers and/or risk limits. These views help decision-makers understand in advance what actions they may need to take should their stressed scenario become a reality.
Strategic Financial Planning
Imagine sitting in a room with other key stakeholders and having the ability to instantly see the institution’s financial trends extending into the future, and then layering on the potential financial impact of your strategic initiatives as they are targeted to be rolled out.
Then, within minutes, being able to see if the long-term profitability and risks are aligned with your appetite for risk, if external forces enter the picture. For example, if interest rates are not what you expected.
Seeing the financial possibilities, well in-advance of execution, gives decision-makers more clarity as they consider the timing of implementing their initiatives. This is instrumental in helping decision-makers prioritize strategic initiatives.
Target Financial Structure
Like a fast-forward button for your balance sheet, the Target Financial Structure helps decision-makers understand, in advance, if the long-term risks embedded in budgets and business plans are aligned with their appetite for risk.
Considering a merger? Feel confident in the answer to this question: Does the sum of the two equal the whole?
C. myers can help in several ways. We can provide financial and ALM modeling, which answer questions such as: What is the potential short- and long-term financial performance of the combined entities? What balance sheet, pricing, operating expense, and other financial structure changes should we consider to achieve our desired benefit in the time-frame we are hoping? Additionally, various strategic What-Ifs can be run live to assist decision-making.
While it’s important to understand, ahead of time, the financial aspects of mergers/acquisitions, it is equally important to clearly articulate qualitative measures of success. Qualitative measures of success can vary widely. However, it is always important to look through the lenses of combined customer perspectives, employee transitions for all sides, and creating culture, clarity, and realignment, as appropriate.
Our clients appreciate our ability to facilitate decision-makers in discussions that ask hard qualitative merger-related questions that, once answered, build confidence toward a direction.
Non-Maturity Deposit Behavior and Pricing Analysis
An important aspect of understanding the long-term profitability and interest rate risk position of your institution is to understand the behavior of your unique non-maturity deposit structure, and how that structure changes as rates change.
Our Non-Maturity Deposit Behavior and Pricing Analysis goes beyond simplistic linear “betas” and standard “decay rates”— incorporating the dynamic relationship between your institution’s pricing, market interest rates, and customers’ behavior, providing:
- Enhanced modeling – understand your deposit balance trends & pricing strategies since 2003 – uniquely capturing distribution changes in both rising & declining rate cycles
- Documentation of your current pricing and behavior assumptions versus historical pricing and behavior experienced during past rate cycles
Loan Prepayment Speed Analysis
Capture your customers’ unique prepayment behaviors with this loan-by-loan prepayment speed analysis. Use it to fine tune loan category prepayment assumptions and model more accurate cash flows for ALM and budgeting, as well as to provide observable assumptions rationale.
Assumptions Review & Documentation of Rationale
A key question that must always be addressed in simulating potentials for the future is: What is our solid rationale for making these assumptions? Imagine having the answer to this question in a user-friendly document. This includes historically based data to support your institution’s position on assumptions, including deposit pricing and withdrawals, cash flows, and prepayments. Stress testing of key assumptions is also included.
An easy to navigate document that provides backtesting of model starting points and forecasts for a variety of model assumptions.
Concentration Risk Policy Review & Development
Develop a clear and meaningful concentration risk policy. We’ll guide you through the thinking behind different types of concentration limits and the pitfalls that can lead to unintended consequences. This can be a key component of quantifying aggregate risks to net worth.