Any organization must have a clear view of its future and its position within its market. FIMAC works with the Board, management, and staff to develop detailed plans based on the institution’s strengths and market opportunities.
A comprehensive review of the IRR process. This internal audit considers the model(s) utilized, complexity of the balance sheet, data processing integration, workflow, checks & balances, policies and procedures, staffing, ALCO and other relevant areas. Recommendations for needed improvement in the risk management process will be made. Given the current regulatory and management emphasis on the overall risk management process, this product should be of interest to all, and is of particular interest to those with internal audit departments or those internal audit departments unfamiliar with the requirements of ALM/IRR modeling.
ALM Model Set-Up Assistance
Generally a one to two day, on-site project designed to assist in proper set-up of a new ALM model or IRR model, or corrected set-up of an existing model. Proper set-up assistance will generally save the operator multiple days of set-up time and allowing for correct modeling.
Non-Maturity Deposit Study
Is a comprehensive statistically based body of work that reveals depositor behavior patterns. The service is designed for the institution that wishes a solid empirical foundation on which to base its IRR process. These studies provide a statistically defensible estimate of the effective maturity (effective duration) of these deposits. Not only is the sensitivity of these deposits to interest rates studied, but the impact of other variables is also considered. The effective duration of such deposits can have a dramatic effect on NPV (also known as NEV) and the volatility of IRR and often results in a dramatically different risk profile than previously demonstrated. Longer duration liabilities allow for longer duration assets, which generally increase profitability.
Strategic IRR Review
Prepared four times a year, this review is a written evaluation of the client’s interest rate risk position. The Report is prepared based on the results of the client’s ALM/IRR model, strategic plan, defined risk limits, and other factors. It provides recommendations relative to actions that can be taken to manage IRR, as well as profitability action steps that may be taken.
Subjective Assumption Determination
This most critical study addresses the subjective assumptions utilized in the production of any ALM/IRR model output. These assumptions have a critical impact on the answers derived from a model, and are the subject of most disagreements between institutions and regulators regarding IRR. Subjective Assumption determination requires a minimum of one day, on-site work with key personnel, including a session with senior management.
Few banks have the ability to a conduct scientific pricing methodology of their deposit pricing, deposit trends, and to properly segment their deposit base. Key to this is the ability to model depositor behavior patterns. Through the use of our proprietary Deposit Analytics model, FIMAC provides the consulting to guide clients through the maze of understanding true Price Optimization modeling. Don’t’ pay too much for the deposit balance you need.
Your bank specific assumptions (primarily your deposit study decay and beta) form the most powerful inputs to your IRR model. Once you master these key assumptions you will improve the accuracy of your entire interest rate risk and ALCO process.
Why? Your non-maturity deposit accounts (NMDAs) are not like any other items on your balance sheet. They have neither a contractual maturity date nor a stated interest rate. That means to accurately model their cash flows you must be able to appropriately model both their expected average life and interest rate characteristics.
Not only must you accurately model these factors, but your modeled assumptions must stand up to regulatory scrutiny. That means documenting your data inputs, calculation process and outputs to meet exam standards.
Practically speaking, your examiner can always dispute your opinions, but can't really question statistical significance. That means we must build our deposit study on statistically significant testing, but we'll temper it with management inputs.
Commercial Loan Grading
Seasoned professionals conduct this critical piece of work, not entry-level staff. FIMAC utilizes an institution’s loan grading system to verify that a proper grade has been assigned to all loans, or to assist with grading loans for the first time when a system is adopted.
Commercial Loan Grading System
One of the more critical areas of risk in a lending institution is the true understanding of credit risk to the capital of the organization. Key to this understanding is a loan grading scale that captures the essence of risk in the commercial loan portfolio. FIMAC is expert in the development, implementation, and updating of this critical system.