The top 10 2022 ALM resources for financial institutions

Click on the link next to the number to access each resource.

ALM goals and approaches

The first installment of a five-part series, this ALM introduction blog covers the basics of developing a sound and robust ALM model. The article is intended for the ALM rookie who wants to understand ALM basics: the process and its usefulness. It begins by outlining and answering four of the most common questions about asset/liability management that Abrigo's ALM consultants hear and then moves on to goal-setting and ALM management approaches. 

Effective model risk management and model validation

Model risk management (MRM) is a framework of systemic oversight of the models a financial institution or organization relies on for financial reporting, decision-making, and other critical purposes. As financial regulators have noted, this oversight is important because of the potential for long-term complications in financial loss when models such as CECL models or ALM models are misused or incorrect. The blog considers the potential consequences of using incorrect or misapplied models to conduct stress testing, assess capital adequacy, estimate credit losses, or monitor and manage high-risk customers. It then outlines what an effective MRM function should look like. 

Interest rate risk and earnings at risk

While the first post of this series gives a general outline, this second installment defines a key component of effective ALM: managing interest rate risk. With a focus on explaining interest rate risk and how to measure it, the blog reviews two approaches--measuring short-term IRR by looking at changes to the income statement and measuring long-term IRR, which looks at changes to the market value of the institution's capital. Read for a review of methods FIs use to measure short-term risk.

Rate hikes and deposit management strategy

The Federal Reserve signaled at the beginning of 2022  that it would start raising interest rates in March 2022, generating a collective high-five throughout the banking industry. Bankers were poised and waiting for interest rates to rise and counting on reaping the rewards of an asset-sensitive balance sheet. This blog can help bankers plan properly for ALM strategy in a rising rate environment by understanding the makeup and behavior of depositors over time through various cycles. 

IRR and value at risk

Interest rate risk can also be measured by considering a longer-term horizon than the short-term focus explained in Part 2 of this series. This third ALM 101 post describes value at risk (VAR), also known as the economic value of equity (EVE) risk, for measuring the potential changes to the market value of the institution’s capital caused by interest rates.  Both short- and long-term measurements can measure earnings performance but using both approaches provides a holistic view of the risk present in an institution’s portfolio.