The course will provide a hands-on dive into how banks steer their balance sheets and interest income using financial market instruments. If you think about career in finance, CFO, trading, treasury, asset management, this is the course for you! The focus will be mainly on liquidity and interest rate (IR) positioning and steering. Students will understand how the IR position influences bank’s interest income and the value of its equity over time. How to position a bank to profit if rates are expected to increase/decrease/rotate? Alternatives to steering the balance sheet via internal pricing of liquidity (FTP) and externally, via operations with bonds and interest rate derivatives, will be explained and practiced. Real life banks' balance sheets and situations on financial markets will be used during the course as both lectors are employed as ALM professionals by a leading financial institutions. To make it more fun, students will form several groups (banks) which will get their own balance sheets as a basis for hands-on (mainly group) homework.
Course contact email: ilovealm2017@gmail.com
Last update: Kotlán Viktor, Ing., Ph.D. (04.02.2025)
Aim of the course
The course will provide intermediate/advanced understanding of how banks steer assets and liabilities, liquidity and interest rate position using both internal tools and operations on financial market.
Last update: Kotlán Viktor, Ing., Ph.D. (25.01.2023)
Course completion requirements
final test: 30 points
midterm test: 20 points
homework = mainly group case studies: 50 points
grading
above 90
A
above 80
B
above 70
C
above 60
D
above 50
E
50 and less
F
Last update: Kotlán Viktor, Ing., Ph.D. (18.01.2024)
Literature
Selected chapters from books below and articles distributed throughout the course
Choudhry, M.: Bank asset and liabilitiy management, John Wiley & Sons, 2007
Bessis, J.: Risk management in banking, Wiley, 2015
Last update: Bednařík Petr, PhDr., Ph.D. (06.06.2020)
Syllabus
preliminary schedule (as of 18.3.20)
#
when
what
what - content
case studies/assignments
1
19.02.2020
Intro to ALM
(i) Admin - Intro lecturers; Course program and expectations from both sides; Grading; (ii) ALM teaser - How does bank earn money. What does ALM do. Banks balance sheet; ALCO decisions, composition, report; active/passive ALM;
- intro info
2
26.02.2020
YC refresh and product characteristics
(i) Yield curve (shapes, theories, fwd rates, ASW, IR derivatives); Duration and Convexity; (ii) BS - product characteristics (LQ, IR behavior incl. amortization types and formulas) and resulting type of bank given BS structure
- due: sign up your team - circulated: assignment 1
3
04.03.2020
YC refresh and product characteristics Vol2
(i) Yield curve (shapes, theories, fwd rates, ASW, IR derivatives); Duration and Convexity; (ii) BS - product characteristics (LQ, IR behavior incl. amortization types and formulas) and resulting type of bank given BS structure
- due: assignment 1 - circulated: assignment 2
11.3.2020
no class - school closed, remote teaching not ready yet
4
18.03.2020
Liquidity risk and FX risk
What, why, how. Measuring, steering. Liquidity gap. Regulatory ratios: LCR, NSFR. Daily and strategic FX risk. FX liquidity. Measurement, steering. Macro connections
- due: assignment 2 - circulated: assignment 3
5
25.03.2020
Hands-on (assignments 1+2)
Will go through the assignments in detail and practice hands-on.
- due: assignment 3
6
01.04.2020
Interest rate risk
Future floating rates based on forwards. IR gaps. Key rate shocks. Yearly earnings versus Value - optimization targets and impact on BS steering. Sensitivity of earnings and value. MVoE/EVE. Regulatory framework for IRRBB
- circulated: assignment 4
7
08.04.2020
Funds transfer pricing
Steering IR/LQ/FX risk - internally vs externally. FTP: why - controling/steering, principles, composition. Practical calculations. Structural contribution alias Transformation margin. Link to behavioral modeling - FTP of NMDs.
- due: assignment 4
8
15.04.2020
Hands-on (assignments 3+4)
Will go through the assignments in detail and practice hands-on.
9
22.04.2020
MIDTERM + current ALM topics
Negative rates, inverse yield curves, benchmark regulation and other hot topics.
10
29.04.2020
ALM and financial market
Market steering - (1) entering into fix/float positions with bonds/derivatives to hedge LQ and IR exposures, (2) Economic/accounting aspects of BB investments. Hedge accounting, cash flow vs fair value hedges. Funding – covered, senior, AT1, MREL.
- circulated: assignment 5
11
06.05.2020
no class - rektorské volno
no class - rektorské volno
12
13.05.2020
Hands-on (midterm + assignment 5)
Will go through the midterm and assignments in detail and practice hands-on.
- due: assignment 5
13
20.05.2020
ALCO report, presentations
Individual banks will present their ideas of how to cope with the assigned shocks using market or FTP actions. Discussion.
Last update: Kotlán Viktor, Ing., Ph.D. (20.01.2021)
Entry requirements
Understanding of banking and financial markets on basic/intermediate level
Financial mathematics (eg. ability to derive forward rates from existing yield curve, calculation of interest and amortization schemes)
Last update: Kotlán Viktor, Ing., Ph.D. (25.01.2023)
