Deposit Modeling Workshop
Think critically about behavioral models for non-maturity deposits
11-12 Sep 2017
Marriott Courtyard, San Diego, CA, United States of America
- Why You Should Attend
Deposit Modeling Workshop
To ensure we meet your expectations and maximise your return on training investment, we favour a classroom/workshop style set
To ensure we meet your expectations and maximise your return on training investment, we favour a classroom/workshop style set up for the delivery of our courses. Please note we have therefore limited number of spaces available and these will be assigned on a first come, first accepted basis. We recommend early booking to avoid disappointment.
“Discover a comprehensive perspective on modeling non-maturity deposit behaviors that will change the way you use your Asset/Liability Management, Funds Transfer Pricing, Profitability and Stress Testing Models”
How will you benefit?
For most depository institutions, one of the biggest challenges of risk and balance sheet management revolves around the treatment of non-maturity deposits. Numerous internal models of risk and performance measurement require that the organization establish an explicit view on deposit behaviors. The challenge derives from the fact that principal and interest cash-flows on most deposit products are not governed by contracts or rules, but rather must be estimated. This is usually done through some type of historical time-series analysis. While this historical analysis is a useful starting point, it is necessarily insufficient for effective risk management purposes because it fails to consider the impact of such things as the depository’s unique growth objectives, internal governance processes as well as the future economic environment. All of these things can result in potentially material differences in deposit behaviors relative to historical experience. When organizations ignore these factors, they produce risk and profitability measures which are likely to be incorrect and misleading. As non-maturity deposits are usually the primary funding source for most depository institutions, any errors in behavioral assumptions will propagate through virtually all of their risk and balance sheet modeling processes.
In order to produce risk and profitability measures which are well-founded and responsive to changing behavioral dynamics, organizations must monitor behavior sclosely to ensure that they remain in line with expectations. In addition, they must also construct incentive programs which acknowledge the value of deposits, particularly from an interest rate risk (IRR) perspective. This cannot be accomplished, for instance, by paying executives, branch managers or tellers for only the volume of deposits or new account openings. Further complicating matters, even if an organization understands why deposits represent a key source of value to the franchise, individual risk and profitability models within the firm are typically developed and managed independently. When this is the case, assumptions around deposit behaviors are likely to be inconsistent across models resulting in discrepancies between the perception of risk and the source of profitability. This often occurs when key profitability and FTP functions fail to properly measure and incent deposit duration. When interest rates move quickly and by a large magnitude, these deficiencies may result in unexpected deposit outflows or re-pricing activity that destroys any value that the deposits might have had to the organization.
Depositories which are truly successful at risk and profitability management demonstrate a cultural awareness of risk and have risk transfer processes which are rigorously developed. These traits are also embodied in deliberately constructed governance processes which are strictly enforced. This attitude forces lines of business and product managers (and the systems which are used to support them) to consider a priori potential changes in behaviors across a broad range of interest rate and economic scenarios. Outcomes are not left to chance and are not only understood after the fact. Such organizations are well-prepared to deal with rapid and significant changes in the economic and competitive environment.
In larger and more geographically diverse organizations, key decisions about balance sheet composition and product structure (maturity terms, embedded options, break funding/earlywithdrawal) are pushed out to countless business units and individuals. For these firms, Funds Transfer Pricing (FTP) serves as the critical linkage between risk creation (product design and pricing) and risk management (ALM/IRR). In addition, FTP serves as the baseline for any serious assessment of product profitability. Therefore, any shortcomings in FTP methodologies will necessarily result in incomplete or ineffective risk transfer from the product owners and managers to corporate treasury. This subsequently leads to incorrect perceptions about the value of individual products. When this occurs, product managers maybe (unintentionally) incented to structure and price products in a way that is suboptimal for the firm. More importantly, treasury’s perception of IRR and liquidity risk will also be incorrect.
No one can know exactly how depositors will respond as this next phase of the business cycle unfolds. The end of the Federal Reserve’s quantitative easing programs has increased the likelihood that interest rates will move up substantially. Depositors are yield starved after several years of near-zero interest rates and will be quick to take advantage of higher returns. Money market mutual funds will once again become viable competition for bank deposits. Additionally, rules restricting what banks may pay on commercial transaction accounts have been eliminated. The economy and financial markets also continue to recover, resulting in deposit disintermediation. Not only are the days of cheap deposits nearing an end, but depositor behaviors have the potential to be unlike anything seen in the recent past.
This course will describe the fundamental challenges of risk and balance sheet management and illustrate the role deposit behaviors play in the measurement and management of risk and profitability. The course will also describe the alignments and governance processes which are necessary for effective risk and balance sheet management to occur. A deposit modeling framework, complete with an embedded FTP process, will be presented.
Non-Maturity Deposits: Balance Sheet Management Considerations
Understand the critical role that non-maturity deposits play in the estimation of key measures of balance sheet risk and profitability. Using examples and case studies sourced from the course leader’s experience managing bank balance sheets through the last couple of business cycles, the two-day session will emphasize the need for risk and balance sheet managers to think critically and comprehensively about behavioral models for non-maturity deposits. Heightened attention is warranted as institutions consider M&A opportunities, capital and liquidity adequacy as well as the level to which interest rates could go in the near future.
About your expert trainer:
David Green brings lessons learned in a 20 year career spanning banking, bank regulation, consulting and software development to bear on a broad range of risk and balance sheet management problems.
He is currently working with Gresham Risk Partners implementing market-leading stress testing solutions. He served as the Treasurer at BankUnited, the largest bank headquartered in Florida. Dr. Green was responsible for the investment portfolio, funding and derivatives, secondary marketing, FTP, and asset/liability (A/L) management. He was also the A/L Manager at SunTrust Bank where he built and managed the interest rate risk models for the bank and worked to coordinate a number of business functions including budgeting/forecasting, funds transfer pricing and strategic balance sheet management.
Dr. Green is a former Chairman of the Georgia Bankers Association's Asset/Liability Management Committee. He also served as a Bank Examiner at the Federal Reserve Bank of Atlanta, where he also spent two years in research while completing his PhD. He was Chairman of Bancware's (division of SunGard Data Systems) US Client Advisory Council for many years.
Dr. Green holds a PhD in Economics from Georgia State University, a BS in Applied Mathematics from Georgia Tech and is a CFA charter holder. He is a frequent speaker at banking and risk management conferences.
For more information about David, his newsletters and other conference presentations, see www.theriskadvisor.net.
A detailed questionnaire will be sent to all course participants to establish exactly where the group training needs lie. The completed forms will be analysed by the course leader/trainer and followed by telephone if further clarification is required. As a result we can guarantee that the course is pitched at exactly the right level and that the issues that you regard as relevant are addressed. The course material will reflect these issues and will enable you to digest the subject matter after the event in your own time.
Who should attend?
This course is intended to benefit all members of a depository institution’s ALM committee, ALM analysts, FTP managers, budgeting/forecasting managers, marketing directors and product profitability managers.
- Key Topics
- Appreciate how deposit modeling impacts the estimation of ALM, liquidity risk and profitability calculations
- Learn how FTP functions create specific performance incentives for product managers
- See how poorly constructed FTP functions can distort the measurement and management of interest rate risk
- Understand how to mitigate some of the unique challenges of modeling deposits
- Review practical case studies highlighting the difficulties of putting the theory of FTP into practice
- Why Choose GFMI marcus evans?
marcus evans specialises in the research and development of strategic events for senior business executives. From our international network of 63 offices, marcus evans produces over 1000 event days a year on strategic issues in corporate finance, telecommunications, technology, health, transportation, capital markets, human resources and business improvement.
Above all, marcus evans provides clients with business information and knowledge which enables them to sustain a valuable competitive advantage and makes a positive contribution to their success.
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- Event Contact
For all enquiries regarding speaking, sponsoring and attending this conference contact:
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Telephone: +44 (0) 20 3002 3400
Fax: +44 (0) 20 3002 3016