The ALM Process
Why do ALM?
As economic forces change, so do interest rates. And as interest rates change, so do the behaviors of both your customers and competitors. If you do not manage this change, it will manage you.
For this reason, Asset Liability Management, or ALM, has become a vital part of pro-actively managing a financial institution in the 21st century.
It has also become a hot topic for regulatory authorities as they have seen the deterioration of many financial institutions that were not prepared for the unexpected.
Today, ALM is a critical part of effective decision-making within financial institutions. Are you using it to its fullest advantage?
Data Mining
Maintaining data integrity is the single most important ingredient in the ALM process. To this end, Objective Advisors uses one of the most technologically advanced data management tools available, the IPS-Sendero Vision system. This system enables the company to download all necessary data directly from its customers' internal data processing systems, thereby eliminating the risk of input error. The system then uses this data to formulate accurate cashflow projections, which are in turn used to calculate both income projections and market values.
Management Reporting
In order to pro-actively manage a financial institution in today's marketplace, it is vital to have an updated forecast that reflects your most current thinking on where the institution is going, as well as the most current thinking on the direction of interest rates. Objective Advisors offers its reporting packages in a variety of formats, allowing you to customize
the frequency and content of your package. Each package is printed in a presentation-quality format, enabling you to use it for distribution to all interested parties, inclusive of management, ALCO, Board of Directors, and regulators.
Regulatory Reporting
In recent years, regulators have increased their level of scrutiny in the area of Asset Liability Management. Institutions are now being required to demonstrate their ability to measure, monitor and manage their institution's interest rate risk in a manner that is consistent with the institution's underlying level of exposure. At Objective Advisors, we have tailored our reports to satisfy these requirements. In addition, as new guidelines are established, we will continue to update our reporting packages so that you will continue to be in compliance.
What-If Analysis
Probably the most important use of an ALM model is the ability to simulate the impact of various product and pricing decisions in a variety of interest rate environments. Endless interest rate scenarios can be created, allowing you, your management team, and your Board of Directors to analyze the potential impact of these scenarios and weigh the risks and rewards of different business strategies before they are voted on.