Index
Professional Perspectives on Banking and Finance, Volume 1
ISBN: 978-1-83549-335-9, eISBN: 978-1-83549-334-2
Publication date: 12 June 2024
This content is currently only available as a PDF
Citation
(2024), "Index", Choudhry, M. (Ed.) Professional Perspectives on Banking and Finance, Volume 1 (Professional Perspectives on Banking and Finance), Emerald Publishing Limited, Leeds, pp. 215-225. https://doi.org/10.1108/978-1-83549-334-220241020
Publisher
:Emerald Publishing Limited
Copyright © 2024 Moorad Choudhry. Published under exclusive licence by Emerald Publishing Limited
INDEX
Adaptation, 9–10
continuous monitoring and adaptation, 10
Aggregate wages, 45
Aggregated average notional amount (AANA), 124–125
Aggregation criteria, 153
Alternative theories of customer prepayments, 173–174
Anti-money laundering (AML), 7
Archegos Capital Management, 91, 123, 126, 134
collapse triggered by margin calls, 128
incentives for market manipulations, 127–128
insufficient initial margin, 132–134
large total return swap exposures, 126–127
liquidation of hedge positions, 129–132
Archegos transactions, CCR RWA for, 140–141
Artificial intelligence (AI), 4, 95
in banking processes, 4
Assessment process, 112
Asset yields, 43
Asset–liability committees (ALCOs), 11, 13, 15, 160, 188
Asset–Liability Management (ALM), 6, 65, 147, 157, 181
banks benefit in terms of, 67–68
discipline, 13–18
forecasts, 152
management information, 153
Association of Chartered Certified Accountants, The (ACCA), 28–29
Australian Prudential Regulation Authority (APRA), 101
Automation in banking processes, harnessing, 4
Average life (AL), 185
Average mortgage rates, 172
Backward looking analysis, 85
Balance guarantee swaps (BGS), 165–166
Balance sheet availability, 208–209
Balance sheet management, 41
building robust risk management frameworks and, 5–7
Balance sheet optimization
efficiency and cost reduction, 153
investors increased scrutiny, 152–153
need for, 151–152
speed of change, 152–153
Balance sheet projection, 156
Bank accountable, 56
issue, 56–60
Bank for International Settlements (BIS), 123–124
Bank Green Bond Issuance, trends in, 70
Bank regulation
back to normal, 91–92
Basel, 95–96
Credit Suisse, 94
March 2020, 89–90
non-financial bank intermediaries, 90–91
stability, 88–89
US Regional banks, 92–93
Bank strategy, 27–28, 30–31
bottom line, 27
and communication, 80–81
direct drivers, 27
indirect drivers, 27
trade-offs and cost of capital, 27–28
Bank Term Funding Programme (BTFP), 93
Banking, 21, 86
balance sheet management, 47
benefits of strategic partnerships in, 9
challenges, 176
changing customer expectations in, 8
harnessing automation and AI in, 4
importance of digital transformation in, 4
industry, 4
leveraging data analytics and cloud computing in, 4–5
professionals, 45
system, 89
Banks, 18, 36–37, 54, 56–57, 79, 81–82, 85–86, 92, 187–188, 190
benefit in terms of ALM, 67–68
embedding strategic risk management in, 37–38
evolving risk landscape for, 5
failures, 80
green bond strategy, 70–72
green bonds for, 67–68, 70
risks for banks as clearers, 137–138
treasurers, 65, 72
Basel Committee, 36, 92, 95–96, 100, 103–104
Basel Committee on Banking Supervision (BCBS), 25–26, 69, 87, 97, 124–125
principles, 100
Basel III, 93, 140–141
Basis trading, 195
Behaviour analytics, 7
Behavioural modelling, 169
Biennial exploratory scenario (BES), 69–70
Bitcoin, 106
Blockchain, 5
Bond basis, 213
Bond CTD, 199–204
calculation methods, 199–201
impact of carry, 204
impact of curve and relative value moves, 203
flat curve and impact of market direction, 201–203
Borrower demographics, 174
Bottom line, 27
Bottom-up processes, 69–70
Business, 82
analysis, 32
architecture, 33
for banks, 10
case approach, 35–36
changing, 12
digital transformation, 4–5
landscape, 10
recommendations, 21–23
revenue, 45
risks, 111
Capital adequacy, 6
Capital allocation, 6
Capital Asset Pricing Model (CAPM), 35
Capital regulation, deficiencies in, 138–144
Carry, 196
impact of, 204
Central Banks, 42
Central clearing counterparty (CCP), 89–90, 124–126
Change agenda, 31
Change management, 33
Chatbots, 8
ChatGPT, 3, 11
Cheapest to deliver (CTD), 206
calculation methods, 199–201
definition, 200
Chinese American Depository Receipts (ADRs), 126
Clearing house, 126
Clearing member, 126
Climate Bonds Initiative (CBI), 71
Climate change, 51, 65–66
Climate financing, 60
Climate justice, 51
Climate risk, 56–57, 65–66
Climate risk stress test (2022), 103
Climate-related financial risks, 95, 97, 104
data limitations, 103–104
emphasis on financial risks, 101
long-term horizon, 101–103
risk coverage, 101
scenario analyses and stress testing, 103
selective list of climate-related publications, 98–100
Climate-related risks, 101
Climate-risk governance, 70
Closeout, 132
Cloud computing in banking, 4–5
Collateralisation, 124–125
Commodity markets, 134–135
Communication, bank strategy and, 80–81
Communities, 53
Competitive advantage, 42
Competitive pressures, 10
Competitive priorities for resilient banks, 12
back to basics, 13–18
risk culture, 18–21
Complacency, 53–54
Complex liability chains, 136–137
Concentration risk, 85
Conduct risk, 84
Confidence, 15
Consumer Protection Act, 87
Conversion factor, 197
Converted forward price, 198
Core, 190
balances, 190–191
Corrective action, 83
Cost of capital, 27–28
Cost of Equity (COE), 35
Counterparty credit risk (CCR), 123–124, 126
Archegos capital management, 126–134
central clearing counterparty, 125–126
clearing risks in energy crisis, 134–138
collateralisation, 124–125
deficiencies in capital regulation, 138–144
lessons learned and recommendations, 144
losses from unwinding of hedge positions in Viacom CBS shares, 142
RWA for Archegos transactions, 140–141
Counterparty exposures, 144
Counterparty risks, 111
COVID-19 pandemic, 41–42, 46, 82, 170
Credit default swap (CDS), 19
Credit derivative protection, 85
Credit risk, 25–26
management, 6–7, 43–44
Credit Suisse (CS), 19, 94
recent examples of bank failures include, 80
Credit valuation adjustment (CVA), 96
Cryptocurrencies, 104
Cryptos, 104–112
assessing, selecting and risk managing crypto business models, 111–112
BCBS Prudential Treatment Standard for, 105
implications for practitioners, 106–112
indicative financial and non-financial risks associated with crypto-related activities, 113
monitoring and managing risks of non-participation, 111
monitoring regulatory and industry body developments, 107
Culture, 31, 37–38
Curve and relative value moves, impact of, 203
Customer, 82–85
Customer behaviour analysis, 174
Customer behaviour modelling, 173
Customer expectations in banking, 8
Customer experience, 8–9
changing customer expectations in banking, 8
embracing customer-centric technologies, 8
leveraging data analytics for customer insights, 8–9
Customer prepayments, alternative theories of, 173–174
Customer-centric technologies, embracing, 8
Customers best interests, 79
Cybersecurity and compliance, strengthening, 7
‘Dash for Cash’, 89
Data aggregation, 149
Data analytics
for customer insights, 8–9
leveraging data analytics in banking, 4–5
Data quality, 149
Debt Management Office (DMO), 204, 213
December 22/March 23 Gilt Roll, 212–213
Deficiencies in capital regulation, 138–144
CCR RWA for Archegos transactions, 140–141
RWA for clearing exposures with clients, 141–144
shortcomings in SA-CCR, 138–140
Deliverable basket, 197
Deposit balance analysis, 47
Deposit protection scheme, 80
Derivatives, 123–124
Deutschmark swap rate (DM swap rate), 184–185
Digital transformation, 4–5
customer experience, 8–9
harnessing automation and AI in banking processes, 4
importance of digital transformation in banking, 4
innovation and adaptation, 9–10
leveraging data analytics and cloud computing in banking, 4–5
risk management, 5–7
strategic partnerships, 9
Discretionary spending, 44–45
Dodd–Frank Wall Street Reform, 87
Downside scenarios, 83
Duration, 202
caps on NMDs, 191
Early repayment charges (ERCs), 174–176
Early warning indicator, 81
Economic Capital, 34–35
Economic equilibrium, 48
Economic forecasts, 47
Economic growth, 48
Economic indicators, 42
Economic stimulus, 48
Economic uncertainty, 170
Edge computing, 5
Effective balance sheet management, 6–7
Energy crisis, 134–138
clearing risks in, 134–138
Energy firms, liquidity challenges for, 135–136
Energy prices, spike in, 134–135
Enterprise Risk Management (ERM), 26
Enterprise Risk Oversight Committee (EROC), 36–37
Enterprise wide funds transfer pricing framework, 155
Environmental, social and governance (ESG), 58–59, 71
Environmental racism, 54
Ether, 106
European Banking Authority (EBA), 69, 191
European Central Bank (ECB), 101, 138
European Commodity Clearing (ECC), 141–143
European Energy Exchange (EEX), 136
European Investment Bank, 70
European Union (EU), 52–53
Exchange traded derivatives (ETD), 126
contracts, 136
transactions, 137, 141, 143
External analysis, 30
ExxonMobil, 55
Fair value (FV), 13
Far value losses (FV losses), 182, 187
Federal Deposit Insurance Corporation (FDIC), 93, 100
Financed emissions, 56–57
Financial Conduct Authority (FCA), 58, 84
Financial crisis (2007–2008), 124–125
Financial institutions, 46, 67, 107, 111, 173–174
Financial market uncertainty, 43
Financial position, 49
Financial resilience, 49
Financial risks, emphasis on, 101
Financial Stability Board (FSB), 65–66, 87–88, 90, 104
Financial system, 91
First notice day, 197–198
First Republic Bank, 13, 93
Fixed bonds, 174
Flat curve and impact of market direction, 201–203
Flat yield curve, 201
Formal caps, 85
Forward starting swaps, 158–159
Forward yield curve, 171
Fossil fuel, 58
Fundamental Review of the Trading Book (FRTB), 96
Funding competition, 46
Funding concentration, 18
Funding mix optimisation, 43
Funding risks, 111
Funding sources, 68
Funds transfer pricing (FTP), 155
Furlough scheme, 82
Future prepayment rates, 176
Futures delivery
hedging the tail, 207–208
timing of delivery, 209–210
G-SIFI bank, 19–20
G20 (International organisations), 65–66, 87
General collateral (GC), 204
Gilt futures basis
balance sheet availability, 208–209
basic principles, 196–199
bond CTD, 199–204
carry and timing of delivery, 209–210
case study, 210–213
December 2022 gilt future, 210–212
December 22/March 23 Gilt Roll, 212–213
definitions, 196–198
delivery, 198–199
issues, 208–210
selected basis trading strategies, 206–208
theory of net basis pricing, 204–206
trading basis, 198
Gilt-edged market maker (GEMM), 204
Gilts, 197–198
delivery process, 198–199
market, 204
Global Financial Crisis (GFC), 87
Global warming, 65
Globalisation, 54
Globally Systemically Important Banks (G-SIBs), 19, 87–88, 140–141
Governance, 70
frameworks, 19, 21
Governing principles, 79–80
Governments, 54
policy, 175
Green Bond Framework, 72
Green bonds, 65–66, 68
for banks, 67–68, 70
issuance, 69–70
issuing, 72
valuation of, 66–67
Green finance, 65–66
Green financing, 67
Greener economy, 58
Greenhouse gas emissions (GHG emissions), 56–57
Greenium, 66–67
Greenwashing, 58–59, 98
Gross basis, 196
Gross domestic product (GDP), 44, 48–49
Hedge positions, 175–176
liquidation of, 129–132
Hedging, 159
approach, 159
mortgage, 172
prepayment, 164–166
solution, 162–163
strategies, 158–159, 175
structural, 158–162
High inflation environment, 45
High-rate environment, 167
Historical data, 34
insights, 176
Hold to Maturity/Collect securities (HTC&S securities), 151
Home equity value, 174
Housing market strength, 173
HQLA availability, 111
Human rights, 52
Implied repo rate, 196
Indirect credit exposure, 111
Indirect investment exposure, 111
Industry body developments
monitoring, 107
selective regulatory and industry body publications pertaining to cryptos, 107–110
Inflation, 44, 48
Inflationary pressures, 48
Initial Margin, 125
Innovation, 9–10
differentiation through, 10
Insufficient initial margin, 132–134
losses from counterparty default on Viacom CBS total return swaps, 133–134
Integrity, 84
Interconnectedness risks, 111
Intercontinental Exchange (ICE), 136, 198–199
Interest rate incentives, 173
Interest Rate Option (IRO), 165
Interest rates, 44, 46, 170
outlook, 150–151
volatility, 81
Interest Transfer Pricing (ITP), 149
Interest-rate risk (IRR), 147, 169, 181
Interest-rate risk in banking book (IRRBB), 13, 15, 147, 157, 165, 181, 183
interest rate outlook, 150–151
legacy process architecture, 147–150
need for balance sheet optimisation, 151–152
target operating model in treasury, 153–156
Internal analysis, 30
Internal and external factors in banking, 174
Internal NMD models, 191
Internal rate of return (IRR), 13, 15, 159, 199–200
Internal ratings-based approach (IRB), 139–140
International Capital Market Association (ICMA), 72
International Finance Corporation (IFC), 71
International Financial Reporting Standard (IFRS), 124, 151
International organisations, 65–66
International Organization of Securities Commissions (IOSCO), 124–125
International Sustainability Standards Board (ISSB), 95
International Swaps and Derivatives Association (ISDA), 125
Investing, 43
Investors, 66, 94
increased scrutiny, 152–153
Just Transition, 64
Key performance indicators (KPIs), 27, 69–70
Key risk indicators (KRIs), 36–37, 69–70
Know your customer (KYC), 7, 91
Knowing the customer, 82–85
Legacy process architecture, 147–150
based in Silos, 148
calculations, 149–150
data, 149
modelling/scenarios, 149
process, 149
reporting, 150
Leverage ratio, 96
Liability chain, 136–137
Liability Driven Investment (LDI), 91
Liability management programme, 71
Liability risks, 101
LIBOR, 89
Liquid cash ratio, 17–18
Liquidation of hedge positions, 129–132
Viacom CBS share price and trading volume, 130
Liquidity challenges, 169
for energy firms, 135–136
Liquidity Coverage Ratio (LCR), 15
Liquidity risks, 25–26, 111
management, 6
Liquidity Transfer Pricing (LTP), 149
Loan-to-value (LTV), 43–44
ratios, 174
Loans, 166
defaults, 46
origination process, 166
prepayments, 169
London Institute of Banking and Finance, The (LIBF), 25–26
Long-term horizon, 101–103
Losses, 132–134
Low interest rates, 42–44
Lower/net zero carbon economy, 56
Lowest net basis, 199–200
Machine learning, 7–9, 95
Macroeconomic conditions, 47
Macroeconomic forces, 47–48
Macroeconomic theory, 175
of prepayments, 173
Macroeconomics, 173
‘March 2020 Episode’, The, 89
Margin calls, collapse triggered by, 128
Margin compression, 157
Margin shortfalls, 136
Market adaptation, 44–45
Market anomalies, 86
Market direction, flat curve and impact of, 201–203
Market manipulations
incentives for, 127–128
sensitivity of total return swap variation margin cash flows, 128
Market risk, 25–26
Market shocks, 111
Materiality of structural IRR, 182–184
Mis-selling activity, 84
Mixed methods, 35
Mobile banking, 152
Modelling prepayments, 169
Modified duration, 202
Monetary policy, 44
Money printing. See Quantitative easing
Mortgage prepayment analysis, 169
Mortgage product lifecycle, 175
Mortgage term assessment, 172
Moving average (MA), 181
Nasdaq OMX, 136
Nationally Determined Contributions (NDCs), 66
Net asset value (NAV), 126
Net basis, 196
calculation, 199–200
pricing theory, 204–206
seller’s options, 204–205
valuation, 199–200
value, 205–206
Net interest margin (NIM), 7, 149, 183
Neutral interest rate, 48
Non-Financial Bank Intermediaries (NBFIs), 90–91
Non-financial entities (NFE), 124–125, 135
Non-maturing deposits (NMDs), 47–48, 181
duration caps on, 191
hedging, 184, 192
modelling, 163
performance of NMD investment book, 185–188
Non-participation, monitoring and managing risks of, 111
Non-systemic banking institutions, 13
Office of Strategic Management (OSM), 37
Office of the Comptroller of the Currency (OCC), 100
Open banking, 8
Operational risk, 25–26
Organisational strategy, 26
Other Comprehensive Income (OCI), 187
Over-the-counter (OTC), 124–125
Overhedging, 175
Oversight committees, 31
Performance measurement, 7
Personal Protection Insurance (PPI), 84
Physical risks, 57, 101
‘Pillar 2 liquidity’ guidance from regulatory authority (PRA), 15
Pipeline hedging, 157–158
Pipeline risk, 158–162
Political, economic, social, technological, legal and environmental (PESTLE), 30
Portfolio management, 32
Positive carry bonds, 196
Post-pandemic inflation, 92
Potential future exposure (PFE), 139–140
Potential risk of loss, 85
Power futures, 138
Predicting Customer Behaviour, 173
Predictive analytics, 8–9
Prepayment assumptions, 175–176
Prepayment event, 164
Prepayment hedging, 164–166
Prepayment methodology, 171
Prepayment phenomenon, 164
Prepayment risk exposure, 164
Preserving integrity, 86
Price value of 01 (PV01), 202
Probability of default (PD), 85, 139–140
Process improvement, 33
Profitability measurement, 7
Project management, 32–33
Project Portfolio management, 33–34
Proportionality in prepayments, 175
Prudential Regulatory Authority (PRA), 69
Qualitative judgement, 34
Quality of delivery, 205
Quantitative easing, 42, 44, 173–174
Quantitative tightening, 44–46
Rate differential, 175
Rate incentive approach, 169–170, 172, 175
alternative theories of customer prepayments, 173–174
background, 171–172
ERCs, 174–175
retrospective testing, 172–173
Re-investment process, 186, 188–190
Realistic projections, 176
Recency bias, 41
Refinancing rate, 171
RegTech, 96
Regulation, 79–80
Regulatory and industry body developments
monitoring, 107
selective regulatory and industry body publications, 107–110
Regulatory bodies, 98
Regulatory concepts of stable and core NMDs, 182
Regulatory policy, 57
Relative value analysis, 203
Replacement cost (RC), 139–140
Replacement value, 124
Reporting process, 156
Repurchase agreement (“Repo”), 196
market, 204
transaction, 196, 204
Reputation, 79
Resilient banks, competitive priorities for, 12
Retrospective analysis, 172, 188, 190
Retrospective testing, 172–173
Return on assets (ROA), 7, 27
Return on capital (ROC), 27–28
Return on equity (ROE), 7, 27, 183
Return on invest (ROI), 34–35
Reverse repo, 196–197
Riding the yield curve strategy, 157
Ring-fencing, 80
Risk, 25–26
appetite, 43–44, 85–86
for banks as clearers, 137–138
complex liability chains, 136–137
culture, 18, 21, 80
in energy crisis, 134–138
huge margin shortfalls, 136
issues, 83
landscape for banks, 5
liquidity challenges for energy firms, 135–136
migration, 86
mitigation, 68
of non-participation, monitoring and managing, 111
register, 34
spike in energy prices, 134–135
Risk coverage, 101
risk types and associated climate-related risk drivers, 102
Risk management, 5, 7, 85–86
ALM, 6
building robust risk management frameworks and balance sheet management, 5–7
capital adequacy and capital allocation, 6
credit risk management, 6–7
evolving risk landscape for banks, 5
liquidity risk management, 6
principles, 18
profitability and performance measurement, 7
strengthening cybersecurity and compliance, 7
Risk management frameworks (RMF), 6, 68
Risk-weighted Assets (RWA), 139–140
for clearing exposures with clients, 141–144
potential future exposure, RWA and Basel III total capital requirement, 143
Risk–Adjusted Return on Capital methods (RAROC methods), 6, 34–35
Robotic process automation (RPA), 4
Safeguarding stability in uncertain times, 5–7
Savings products, 174
Savings ratio, 46–48
Scenario analyses, 103
Scenario planning, 31
Scenario testing, 86
Scorecards, 32
Seasonality in lending, 174
Senate Banking Committee, 93
Shadow banking, 90, 111
Signature Bank, 13, 93
Silicon Valley Bank (SVB), 13, 16, 92, 182
lessons from failure of, 190–191
recent examples of bank failures include, 80
Simulation, 132–134
Social justice, 51–52
Social media risk, 18
Solid governance model, 71
Stable balances, 190–191
Stablecoins, 111
Stamp duty holiday, 170, 173
Standard Initial Margin Model (SIMM), 125
Standardized Approach for CCR (SA-CCR), 138–140
Stepped fees, 174–175
Strategic choices, 27
Strategic Direction and Monitoring Committee (SDMC), 37
Strategic execution and monitoring, 33
Strategic learning, 33–34
Strategic management, 26–27
Strategic partnerships, 9
benefits of strategic partnerships in banking, 9
establishing effective partnership strategies, 9
Strategic planning, 32
Strategic risk, 25–26
Strategic risk management, 36
bank strategy, 27–28, 30–31
in banking, 28–29
cycle, 31–34
embedding strategic risk management in banks, 37–38
modelling, 34–36
other risk, 25–26
proposed strategic risk management system, 36–38
SDMC, 37
sources of, 29
strategy vs. strategic management, 26–27
Strategic Risk Register, 37
Strategy, 26–27, 34
development, 33–34, 37
maps, 32
Strengths, weaknesses, opportunities and threats analysis (SWOT analysis), 25–26, 30
Stress testing, 86, 103
Structural hedging, 158–162
current accounts, 162–163
example, 158–159, 162–163
Structural interest-rate risk hedging
duration caps on NMDs, 191
lessons from failure of SVB, 190–191
materiality of structural IRR, 182–184
performance of NMD investment book, 185–188
practical implications, 191–192
stable and core balances, 190–191
suspending re-investment, 188–190
theory of cyclical smoothing, 184–185
Supervisory Principles, 114–121
SupTech, 96
Sustainability, 67
nurturing, 82
Sustainable banking
bank strategy and communication, 80–81
governing principles, stability and regulation, 79–80
nurturing sustainability and not panicking, 82
recent examples of bank failures include SVB and CS, 80
Sustainable bonds, 65
Sustainable finance, 71–72
Sustainable/sustainability, 56–57
Swap position management, 175
Swaptions, 159
Swiss National Bank, The, 94
Target operating model in treasury, 153–156
Term funding, 45
Theory of cyclical smoothing, 184–185
Timing of delivery, 205
Top-down processes, 69–70
Total return swaps (TRS), 127
Trade-offs, 27–28
Transition risks, 57, 101
Treasury, 159–160
architecture, 147–149
cash flow engine, 153
dataset, 153
modelling team, 155–156
risk, 149
standpoint, 164
target operating model in, 153–156
Treat customers fairly, 84
Trust, 86
Underhedging, 175
Unemployment rates, 45
Union Bank of Switzerland (UBS), 19
United Nation (UN), 51–52
United States’ generally accepted accounting practices (US-GAAP), 124
US Federal Reserve, 92
US Regional banks, 92–93
US Securities and Exchange Commission (SEC), 126
lawsuit, 127–129
Value at Risk (VaR), 35
Variation margin, 125
Viacom CBS, 129–130
Volcker Rule, 87
Volume-Weighted-Average Price (VWAP), 130–131, 141
Working together, 86
World Economic Forum, 54
Adaptation
, 9–10
continuous monitoring and adaptation
, 10
Aggregate wages
, 45
Aggregated average notional amount (AANA)
, 124–125
Aggregation criteria
, 153
Alternative theories of customer prepayments
, 173–174
Anti-money laundering (AML)
, 7
Archegos Capital Management
, 91, 123, 126, 134
collapse triggered by margin calls
, 128
incentives for market manipulations
, 127–128
insufficient initial margin
, 132–134
large total return swap exposures
, 126–127
liquidation of hedge positions
, 129–132
Archegos transactions, CCR RWA for
, 140–141
Artificial intelligence (AI)
, 4, 95
in banking processes
, 4
Assessment process
, 112
Asset yields
, 43
Asset–liability committees (ALCOs)
, 11, 13, 15, 160, 188
Asset–Liability Management (ALM)
, 6, 65, 147, 157, 181
banks benefit in terms of
, 67–68
discipline
, 13–18
forecasts
, 152
management information
, 153
Association of Chartered Certified Accountants, The (ACCA)
, 28–29
Australian Prudential Regulation Authority (APRA)
, 101
Automation in banking processes, harnessing
, 4
Average life (AL)
, 185
Average mortgage rates
, 172
Backward looking analysis
, 85
Balance guarantee swaps (BGS)
, 165–166
Balance sheet availability
, 208–209
Balance sheet management
, 41
building robust risk management frameworks and
, 5–7
Balance sheet optimization
efficiency and cost reduction
, 153
investors increased scrutiny
, 152–153
need for
, 151–152
speed of change
, 152–153
Balance sheet projection
, 156
Bank accountable
, 56
issue
, 56–60
Bank for International Settlements (BIS)
, 123–124
Bank Green Bond Issuance, trends in
, 70
Bank regulation
back to normal
, 91–92
Basel
, 95–96
Credit Suisse
, 94
March 2020
, 89–90
non-financial bank intermediaries
, 90–91
stability
, 88–89
US Regional banks
, 92–93
Bank strategy
, 27–28, 30–31
bottom line
, 27
and communication
, 80–81
direct drivers
, 27
indirect drivers
, 27
trade-offs and cost of capital
, 27–28
Bank Term Funding Programme (BTFP)
, 93
Banking
, 21, 86
balance sheet management
, 47
benefits of strategic partnerships in
, 9
challenges
, 176
changing customer expectations in
, 8
harnessing automation and AI in
, 4
importance of digital transformation in
, 4
industry
, 4
leveraging data analytics and cloud computing in
, 4–5
professionals
, 45
system
, 89
Banks
, 18, 36–37, 54, 56–57, 79, 81–82, 85–86, 92, 187–188, 190
benefit in terms of ALM
, 67–68
embedding strategic risk management in
, 37–38
evolving risk landscape for
, 5
failures
, 80
green bond strategy
, 70–72
green bonds for
, 67–68, 70
risks for banks as clearers
, 137–138
treasurers
, 65, 72
Basel Committee
, 36, 92, 95–96, 100, 103–104
Basel Committee on Banking Supervision (BCBS)
, 25–26, 69, 87, 97, 124–125
principles
, 100
Basel III
, 93, 140–141
Basis trading
, 195
Behaviour analytics
, 7
Behavioural modelling
, 169
Biennial exploratory scenario (BES)
, 69–70
Bitcoin
, 106
Blockchain
, 5
Bond basis
, 213
Bond CTD
, 199–204
calculation methods
, 199–201
impact of carry
, 204
impact of curve and relative value moves
, 203
flat curve and impact of market direction
, 201–203
Borrower demographics
, 174
Bottom line
, 27
Bottom-up processes
, 69–70
Business
, 82
analysis
, 32
architecture
, 33
for banks
, 10
case approach
, 35–36
changing
, 12
digital transformation
, 4–5
landscape
, 10
recommendations
, 21–23
revenue
, 45
risks
, 111
Capital adequacy, 6
Capital allocation, 6
Capital Asset Pricing Model (CAPM), 35
Capital regulation, deficiencies in, 138–144
Carry, 196
impact of, 204
Central Banks, 42
Central clearing counterparty (CCP), 89–90, 124–126
Change agenda, 31
Change management, 33
Chatbots, 8
ChatGPT, 3, 11
Cheapest to deliver (CTD), 206
calculation methods, 199–201
definition, 200
Chinese American Depository Receipts (ADRs), 126
Clearing house, 126
Clearing member, 126
Climate Bonds Initiative (CBI), 71
Climate change, 51, 65–66
Climate financing, 60
Climate justice, 51
Climate risk, 56–57, 65–66
Climate risk stress test (2022), 103
Climate-related financial risks, 95, 97, 104
data limitations, 103–104
emphasis on financial risks, 101
long-term horizon, 101–103
risk coverage, 101
scenario analyses and stress testing, 103
selective list of climate-related publications, 98–100
Climate-related risks, 101
Climate-risk governance, 70
Closeout, 132
Cloud computing in banking, 4–5
Collateralisation, 124–125
Commodity markets, 134–135
Communication, bank strategy and, 80–81
Communities, 53
Competitive advantage, 42
Competitive pressures, 10
Competitive priorities for resilient banks, 12
back to basics, 13–18
risk culture, 18–21
Complacency, 53–54
Complex liability chains, 136–137
Concentration risk, 85
Conduct risk, 84
Confidence, 15
Consumer Protection Act, 87
Conversion factor, 197
Converted forward price, 198
Core, 190
balances, 190–191
Corrective action, 83
Cost of capital, 27–28
Cost of Equity (COE), 35
Counterparty credit risk (CCR), 123–124, 126
Archegos capital management, 126–134
central clearing counterparty, 125–126
clearing risks in energy crisis, 134–138
collateralisation, 124–125
deficiencies in capital regulation, 138–144
lessons learned and recommendations, 144
losses from unwinding of hedge positions in Viacom CBS shares, 142
RWA for Archegos transactions, 140–141
Counterparty exposures, 144
Counterparty risks, 111
COVID-19 pandemic, 41–42, 46, 82, 170
Credit default swap (CDS), 19
Credit derivative protection, 85
Credit risk, 25–26
management, 6–7, 43–44
Credit Suisse (CS), 19, 94
recent examples of bank failures include, 80
Credit valuation adjustment (CVA), 96
Cryptocurrencies, 104
Cryptos, 104–112
assessing, selecting and risk managing crypto business models, 111–112
BCBS Prudential Treatment Standard for, 105
implications for practitioners, 106–112
indicative financial and non-financial risks associated with crypto-related activities, 113
monitoring and managing risks of non-participation, 111
monitoring regulatory and industry body developments, 107
Culture, 31, 37–38
Curve and relative value moves, impact of, 203
Customer, 82–85
Customer behaviour analysis, 174
Customer behaviour modelling, 173
Customer expectations in banking, 8
Customer experience, 8–9
changing customer expectations in banking, 8
embracing customer-centric technologies, 8
leveraging data analytics for customer insights, 8–9
Customer prepayments, alternative theories of, 173–174
Customer-centric technologies, embracing, 8
Customers best interests, 79
Cybersecurity and compliance, strengthening, 7
‘Dash for Cash’, 89
Data aggregation, 149
Data analytics
for customer insights, 8–9
leveraging data analytics in banking, 4–5
Data quality, 149
Debt Management Office (DMO), 204, 213
December 22/March 23 Gilt Roll, 212–213
Deficiencies in capital regulation, 138–144
CCR RWA for Archegos transactions, 140–141
RWA for clearing exposures with clients, 141–144
shortcomings in SA-CCR, 138–140
Deliverable basket, 197
Deposit balance analysis, 47
Deposit protection scheme, 80
Derivatives, 123–124
Deutschmark swap rate (DM swap rate), 184–185
Digital transformation, 4–5
customer experience, 8–9
harnessing automation and AI in banking processes, 4
importance of digital transformation in banking, 4
innovation and adaptation, 9–10
leveraging data analytics and cloud computing in banking, 4–5
risk management, 5–7
strategic partnerships, 9
Discretionary spending, 44–45
Dodd–Frank Wall Street Reform, 87
Downside scenarios, 83
Duration, 202
caps on NMDs, 191
Early repayment charges (ERCs), 174–176
Early warning indicator, 81
Economic Capital, 34–35
Economic equilibrium, 48
Economic forecasts, 47
Economic growth, 48
Economic indicators, 42
Economic stimulus, 48
Economic uncertainty, 170
Edge computing, 5
Effective balance sheet management, 6–7
Energy crisis, 134–138
clearing risks in, 134–138
Energy firms, liquidity challenges for, 135–136
Energy prices, spike in, 134–135
Enterprise Risk Management (ERM), 26
Enterprise Risk Oversight Committee (EROC), 36–37
Enterprise wide funds transfer pricing framework, 155
Environmental, social and governance (ESG), 58–59, 71
Environmental racism, 54
Ether, 106
European Banking Authority (EBA), 69, 191
European Central Bank (ECB), 101, 138
European Commodity Clearing (ECC), 141–143
European Energy Exchange (EEX), 136
European Investment Bank, 70
European Union (EU), 52–53
Exchange traded derivatives (ETD), 126
contracts, 136
transactions, 137, 141, 143
External analysis, 30
ExxonMobil, 55
Fair value (FV), 13
Far value losses (FV losses), 182, 187
Federal Deposit Insurance Corporation (FDIC), 93, 100
Financed emissions, 56–57
Financial Conduct Authority (FCA), 58, 84
Financial crisis (2007–2008), 124–125
Financial institutions, 46, 67, 107, 111, 173–174
Financial market uncertainty, 43
Financial position, 49
Financial resilience, 49
Financial risks, emphasis on, 101
Financial Stability Board (FSB), 65–66, 87–88, 90, 104
Financial system, 91
First notice day, 197–198
First Republic Bank, 13, 93
Fixed bonds, 174
Flat curve and impact of market direction, 201–203
Flat yield curve, 201
Formal caps, 85
Forward starting swaps, 158–159
Forward yield curve, 171
Fossil fuel, 58
Fundamental Review of the Trading Book (FRTB), 96
Funding competition, 46
Funding concentration, 18
Funding mix optimisation, 43
Funding risks, 111
Funding sources, 68
Funds transfer pricing (FTP), 155
Furlough scheme, 82
Future prepayment rates, 176
Futures delivery
hedging the tail, 207–208
timing of delivery, 209–210
G-SIFI bank, 19–20
G20 (International organisations), 65–66, 87
General collateral (GC), 204
Gilt futures basis
balance sheet availability, 208–209
basic principles, 196–199
bond CTD, 199–204
carry and timing of delivery, 209–210
case study, 210–213
December 2022 gilt future, 210–212
December 22/March 23 Gilt Roll, 212–213
definitions, 196–198
delivery, 198–199
issues, 208–210
selected basis trading strategies, 206–208
theory of net basis pricing, 204–206
trading basis, 198
Gilt-edged market maker (GEMM), 204
Gilts, 197–198
delivery process, 198–199
market, 204
Global Financial Crisis (GFC), 87
Global warming, 65
Globalisation, 54
Globally Systemically Important Banks (G-SIBs), 19, 87–88, 140–141
Governance, 70
frameworks, 19, 21
Governing principles, 79–80
Governments, 54
policy, 175
Green Bond Framework, 72
Green bonds, 65–66, 68
for banks, 67–68, 70
issuance, 69–70
issuing, 72
valuation of, 66–67
Green finance, 65–66
Green financing, 67
Greener economy, 58
Greenhouse gas emissions (GHG emissions), 56–57
Greenium, 66–67
Greenwashing, 58–59, 98
Gross basis, 196
Gross domestic product (GDP), 44, 48–49
Hedge positions, 175–176
liquidation of, 129–132
Hedging, 159
approach, 159
mortgage, 172
prepayment, 164–166
solution, 162–163
strategies, 158–159, 175
structural, 158–162
High inflation environment, 45
High-rate environment, 167
Historical data, 34
insights, 176
Hold to Maturity/Collect securities (HTC&S securities), 151
Home equity value, 174
Housing market strength, 173
HQLA availability, 111
Human rights, 52
Implied repo rate, 196
Indirect credit exposure, 111
Indirect investment exposure, 111
Industry body developments
monitoring, 107
selective regulatory and industry body publications pertaining to cryptos, 107–110
Inflation, 44, 48
Inflationary pressures, 48
Initial Margin, 125
Innovation, 9–10
differentiation through, 10
Insufficient initial margin, 132–134
losses from counterparty default on Viacom CBS total return swaps, 133–134
Integrity, 84
Interconnectedness risks, 111
Intercontinental Exchange (ICE), 136, 198–199
Interest rate incentives, 173
Interest Rate Option (IRO), 165
Interest rates, 44, 46, 170
outlook, 150–151
volatility, 81
Interest Transfer Pricing (ITP), 149
Interest-rate risk (IRR), 147, 169, 181
Interest-rate risk in banking book (IRRBB), 13, 15, 147, 157, 165, 181, 183
interest rate outlook, 150–151
legacy process architecture, 147–150
need for balance sheet optimisation, 151–152
target operating model in treasury, 153–156
Internal analysis, 30
Internal and external factors in banking, 174
Internal NMD models, 191
Internal rate of return (IRR), 13, 15, 159, 199–200
Internal ratings-based approach (IRB), 139–140
International Capital Market Association (ICMA), 72
International Finance Corporation (IFC), 71
International Financial Reporting Standard (IFRS), 124, 151
International organisations, 65–66
International Organization of Securities Commissions (IOSCO), 124–125
International Sustainability Standards Board (ISSB), 95
International Swaps and Derivatives Association (ISDA), 125
Investing, 43
Investors, 66, 94
increased scrutiny, 152–153
Just Transition, 64
Key performance indicators (KPIs), 27, 69–70
Key risk indicators (KRIs), 36–37, 69–70
Know your customer (KYC), 7, 91
Knowing the customer, 82–85
Legacy process architecture, 147–150
based in Silos, 148
calculations, 149–150
data, 149
modelling/scenarios, 149
process, 149
reporting, 150
Leverage ratio, 96
Liability chain, 136–137
Liability Driven Investment (LDI), 91
Liability management programme, 71
Liability risks, 101
LIBOR, 89
Liquid cash ratio, 17–18
Liquidation of hedge positions, 129–132
Viacom CBS share price and trading volume, 130
Liquidity challenges, 169
for energy firms, 135–136
Liquidity Coverage Ratio (LCR), 15
Liquidity risks, 25–26, 111
management, 6
Liquidity Transfer Pricing (LTP), 149
Loan-to-value (LTV), 43–44
ratios, 174
Loans, 166
defaults, 46
origination process, 166
prepayments, 169
London Institute of Banking and Finance, The (LIBF), 25–26
Long-term horizon, 101–103
Losses, 132–134
Low interest rates, 42–44
Lower/net zero carbon economy, 56
Lowest net basis, 199–200
Machine learning, 7–9, 95
Macroeconomic conditions, 47
Macroeconomic forces, 47–48
Macroeconomic theory, 175
of prepayments, 173
Macroeconomics, 173
‘March 2020 Episode’, The, 89
Margin calls, collapse triggered by, 128
Margin compression, 157
Margin shortfalls, 136
Market adaptation, 44–45
Market anomalies, 86
Market direction, flat curve and impact of, 201–203
Market manipulations
incentives for, 127–128
sensitivity of total return swap variation margin cash flows, 128
Market risk, 25–26
Market shocks, 111
Materiality of structural IRR, 182–184
Mis-selling activity, 84
Mixed methods, 35
Mobile banking, 152
Modelling prepayments, 169
Modified duration, 202
Monetary policy, 44
Money printing. See Quantitative easing
Mortgage prepayment analysis, 169
Mortgage product lifecycle, 175
Mortgage term assessment, 172
Moving average (MA), 181
Nasdaq OMX, 136
Nationally Determined Contributions (NDCs), 66
Net asset value (NAV), 126
Net basis, 196
calculation, 199–200
pricing theory, 204–206
seller’s options, 204–205
valuation, 199–200
value, 205–206
Net interest margin (NIM), 7, 149, 183
Neutral interest rate, 48
Non-Financial Bank Intermediaries (NBFIs), 90–91
Non-financial entities (NFE), 124–125, 135
Non-maturing deposits (NMDs), 47–48, 181
duration caps on, 191
hedging, 184, 192
modelling, 163
performance of NMD investment book, 185–188
Non-participation, monitoring and managing risks of, 111
Non-systemic banking institutions, 13
Office of Strategic Management (OSM), 37
Office of the Comptroller of the Currency (OCC), 100
Open banking, 8
Operational risk, 25–26
Organisational strategy, 26
Other Comprehensive Income (OCI), 187
Over-the-counter (OTC), 124–125
Overhedging, 175
Oversight committees, 31
Performance measurement, 7
Personal Protection Insurance (PPI), 84
Physical risks, 57, 101
‘Pillar 2 liquidity’ guidance from regulatory authority (PRA), 15
Pipeline hedging, 157–158
Pipeline risk, 158–162
Political, economic, social, technological, legal and environmental (PESTLE), 30
Portfolio management, 32
Positive carry bonds, 196
Post-pandemic inflation, 92
Potential future exposure (PFE), 139–140
Potential risk of loss, 85
Power futures, 138
Predicting Customer Behaviour, 173
Predictive analytics, 8–9
Prepayment assumptions, 175–176
Prepayment event, 164
Prepayment hedging, 164–166
Prepayment methodology, 171
Prepayment phenomenon, 164
Prepayment risk exposure, 164
Preserving integrity, 86
Price value of 01 (PV01), 202
Probability of default (PD), 85, 139–140
Process improvement, 33
Profitability measurement, 7
Project management, 32–33
Project Portfolio management, 33–34
Proportionality in prepayments, 175
Prudential Regulatory Authority (PRA), 69
Qualitative judgement, 34
Quality of delivery, 205
Quantitative easing, 42, 44, 173–174
Quantitative tightening, 44–46
Rate differential, 175
Rate incentive approach, 169–170, 172, 175
alternative theories of customer prepayments, 173–174
background, 171–172
ERCs, 174–175
retrospective testing, 172–173
Re-investment process, 186, 188–190
Realistic projections, 176
Recency bias, 41
Refinancing rate, 171
RegTech, 96
Regulation, 79–80
Regulatory and industry body developments
monitoring, 107
selective regulatory and industry body publications, 107–110
Regulatory bodies, 98
Regulatory concepts of stable and core NMDs, 182
Regulatory policy, 57
Relative value analysis, 203
Replacement cost (RC), 139–140
Replacement value, 124
Reporting process, 156
Repurchase agreement (“Repo”), 196
market, 204
transaction, 196, 204
Reputation, 79
Resilient banks, competitive priorities for, 12
Retrospective analysis, 172, 188, 190
Retrospective testing, 172–173
Return on assets (ROA), 7, 27
Return on capital (ROC), 27–28
Return on equity (ROE), 7, 27, 183
Return on invest (ROI), 34–35
Reverse repo, 196–197
Riding the yield curve strategy, 157
Ring-fencing, 80
Risk, 25–26
appetite, 43–44, 85–86
for banks as clearers, 137–138
complex liability chains, 136–137
culture, 18, 21, 80
in energy crisis, 134–138
huge margin shortfalls, 136
issues, 83
landscape for banks, 5
liquidity challenges for energy firms, 135–136
migration, 86
mitigation, 68
of non-participation, monitoring and managing, 111
register, 34
spike in energy prices, 134–135
Risk coverage, 101
risk types and associated climate-related risk drivers, 102
Risk management, 5, 7, 85–86
ALM, 6
building robust risk management frameworks and balance sheet management, 5–7
capital adequacy and capital allocation, 6
credit risk management, 6–7
evolving risk landscape for banks, 5
liquidity risk management, 6
principles, 18
profitability and performance measurement, 7
strengthening cybersecurity and compliance, 7
Risk management frameworks (RMF), 6, 68
Risk-weighted Assets (RWA), 139–140
for clearing exposures with clients, 141–144
potential future exposure, RWA and Basel III total capital requirement, 143
Risk–Adjusted Return on Capital methods (RAROC methods), 6, 34–35
Robotic process automation (RPA), 4
Safeguarding stability in uncertain times, 5–7
Savings products, 174
Savings ratio, 46–48
Scenario analyses, 103
Scenario planning, 31
Scenario testing, 86
Scorecards, 32
Seasonality in lending, 174
Senate Banking Committee, 93
Shadow banking, 90, 111
Signature Bank, 13, 93
Silicon Valley Bank (SVB), 13, 16, 92, 182
lessons from failure of, 190–191
recent examples of bank failures include, 80
Simulation, 132–134
Social justice, 51–52
Social media risk, 18
Solid governance model, 71
Stable balances, 190–191
Stablecoins, 111
Stamp duty holiday, 170, 173
Standard Initial Margin Model (SIMM), 125
Standardized Approach for CCR (SA-CCR), 138–140
Stepped fees, 174–175
Strategic choices, 27
Strategic Direction and Monitoring Committee (SDMC), 37
Strategic execution and monitoring, 33
Strategic learning, 33–34
Strategic management, 26–27
Strategic partnerships, 9
benefits of strategic partnerships in banking, 9
establishing effective partnership strategies, 9
Strategic planning, 32
Strategic risk, 25–26
Strategic risk management, 36
bank strategy, 27–28, 30–31
in banking, 28–29
cycle, 31–34
embedding strategic risk management in banks, 37–38
modelling, 34–36
other risk, 25–26
proposed strategic risk management system, 36–38
SDMC, 37
sources of, 29
strategy vs. strategic management, 26–27
Strategic Risk Register, 37
Strategy, 26–27, 34
development, 33–34, 37
maps, 32
Strengths, weaknesses, opportunities and threats analysis (SWOT analysis), 25–26, 30
Stress testing, 86, 103
Structural hedging, 158–162
current accounts, 162–163
example, 158–159, 162–163
Structural interest-rate risk hedging
duration caps on NMDs, 191
lessons from failure of SVB, 190–191
materiality of structural IRR, 182–184
performance of NMD investment book, 185–188
practical implications, 191–192
stable and core balances, 190–191
suspending re-investment, 188–190
theory of cyclical smoothing, 184–185
Supervisory Principles, 114–121
SupTech, 96
Sustainability, 67
nurturing, 82
Sustainable banking
bank strategy and communication, 80–81
governing principles, stability and regulation, 79–80
nurturing sustainability and not panicking, 82
recent examples of bank failures include SVB and CS, 80
Sustainable bonds, 65
Sustainable finance, 71–72
Sustainable/sustainability, 56–57
Swap position management, 175
Swaptions, 159
Swiss National Bank, The, 94
Target operating model in treasury, 153–156
Term funding, 45
Theory of cyclical smoothing, 184–185
Timing of delivery, 205
Top-down processes, 69–70
Total return swaps (TRS), 127
Trade-offs, 27–28
Transition risks, 57, 101
Treasury, 159–160
architecture, 147–149
cash flow engine, 153
dataset, 153
modelling team, 155–156
risk, 149
standpoint, 164
target operating model in, 153–156
Treat customers fairly, 84
Trust, 86
Underhedging, 175
Unemployment rates, 45
Union Bank of Switzerland (UBS), 19
United Nation (UN), 51–52
United States’ generally accepted accounting practices (US-GAAP), 124
US Federal Reserve, 92
US Regional banks, 92–93
US Securities and Exchange Commission (SEC), 126
lawsuit, 127–129
Value at Risk (VaR), 35
Variation margin, 125
Viacom CBS, 129–130
Volcker Rule, 87
Volume-Weighted-Average Price (VWAP), 130–131, 141
Working together, 86
World Economic Forum, 54
Capital adequacy
, 6
Capital allocation
, 6
Capital Asset Pricing Model (CAPM)
, 35
Capital regulation, deficiencies in
, 138–144
Carry
, 196
impact of
, 204
Central Banks
, 42
Central clearing counterparty (CCP)
, 89–90, 124–126
Change agenda
, 31
Change management
, 33
Chatbots
, 8
ChatGPT
, 3, 11
Cheapest to deliver (CTD)
, 206
calculation methods
, 199–201
definition
, 200
Chinese American Depository Receipts (ADRs)
, 126
Clearing house
, 126
Clearing member
, 126
Climate Bonds Initiative (CBI)
, 71
Climate change
, 51, 65–66
Climate financing
, 60
Climate justice
, 51
Climate risk
, 56–57, 65–66
Climate risk stress test (2022)
, 103
Climate-related financial risks
, 95, 97, 104
data limitations
, 103–104
emphasis on financial risks
, 101
long-term horizon
, 101–103
risk coverage
, 101
scenario analyses and stress testing
, 103
selective list of climate-related publications
, 98–100
Climate-related risks
, 101
Climate-risk governance
, 70
Closeout
, 132
Cloud computing in banking
, 4–5
Collateralisation
, 124–125
Commodity markets
, 134–135
Communication, bank strategy and
, 80–81
Communities
, 53
Competitive advantage
, 42
Competitive pressures
, 10
Competitive priorities for resilient banks
, 12
back to basics
, 13–18
risk culture
, 18–21
Complacency
, 53–54
Complex liability chains
, 136–137
Concentration risk
, 85
Conduct risk
, 84
Confidence
, 15
Consumer Protection Act
, 87
Conversion factor
, 197
Converted forward price
, 198
Core
, 190
balances
, 190–191
Corrective action
, 83
Cost of capital
, 27–28
Cost of Equity (COE)
, 35
Counterparty credit risk (CCR)
, 123–124, 126
Archegos capital management
, 126–134
central clearing counterparty
, 125–126
clearing risks in energy crisis
, 134–138
collateralisation
, 124–125
deficiencies in capital regulation
, 138–144
lessons learned and recommendations
, 144
losses from unwinding of hedge positions in Viacom CBS shares
, 142
RWA for Archegos transactions
, 140–141
Counterparty exposures
, 144
Counterparty risks
, 111
COVID-19 pandemic
, 41–42, 46, 82, 170
Credit default swap (CDS)
, 19
Credit derivative protection
, 85
Credit risk
, 25–26
management
, 6–7, 43–44
Credit Suisse (CS)
, 19, 94
recent examples of bank failures include
, 80
Credit valuation adjustment (CVA)
, 96
Cryptocurrencies
, 104
Cryptos
, 104–112
assessing, selecting and risk managing crypto business models
, 111–112
BCBS Prudential Treatment Standard for
, 105
implications for practitioners
, 106–112
indicative financial and non-financial risks associated with crypto-related activities
, 113
monitoring and managing risks of non-participation
, 111
monitoring regulatory and industry body developments
, 107
Culture
, 31, 37–38
Curve and relative value moves, impact of
, 203
Customer
, 82–85
Customer behaviour analysis
, 174
Customer behaviour modelling
, 173
Customer expectations in banking
, 8
Customer experience
, 8–9
changing customer expectations in banking
, 8
embracing customer-centric technologies
, 8
leveraging data analytics for customer insights
, 8–9
Customer prepayments, alternative theories of
, 173–174
Customer-centric technologies, embracing
, 8
Customers best interests
, 79
Cybersecurity and compliance, strengthening
, 7
‘Dash for Cash’
, 89
Data aggregation
, 149
Data analytics
for customer insights
, 8–9
leveraging data analytics in banking
, 4–5
Data quality
, 149
Debt Management Office (DMO)
, 204, 213
December 22/March 23 Gilt Roll
, 212–213
Deficiencies in capital regulation
, 138–144
CCR RWA for Archegos transactions
, 140–141
RWA for clearing exposures with clients
, 141–144
shortcomings in SA-CCR
, 138–140
Deliverable basket
, 197
Deposit balance analysis
, 47
Deposit protection scheme
, 80
Derivatives
, 123–124
Deutschmark swap rate (DM swap rate)
, 184–185
Digital transformation
, 4–5
customer experience
, 8–9
harnessing automation and AI in banking processes
, 4
importance of digital transformation in banking
, 4
innovation and adaptation
, 9–10
leveraging data analytics and cloud computing in banking
, 4–5
risk management
, 5–7
strategic partnerships
, 9
Discretionary spending
, 44–45
Dodd–Frank Wall Street Reform
, 87
Downside scenarios
, 83
Duration
, 202
caps on NMDs
, 191
Early repayment charges (ERCs), 174–176
Early warning indicator, 81
Economic Capital, 34–35
Economic equilibrium, 48
Economic forecasts, 47
Economic growth, 48
Economic indicators, 42
Economic stimulus, 48
Economic uncertainty, 170
Edge computing, 5
Effective balance sheet management, 6–7
Energy crisis, 134–138
clearing risks in, 134–138
Energy firms, liquidity challenges for, 135–136
Energy prices, spike in, 134–135
Enterprise Risk Management (ERM), 26
Enterprise Risk Oversight Committee (EROC), 36–37
Enterprise wide funds transfer pricing framework, 155
Environmental, social and governance (ESG), 58–59, 71
Environmental racism, 54
Ether, 106
European Banking Authority (EBA), 69, 191
European Central Bank (ECB), 101, 138
European Commodity Clearing (ECC), 141–143
European Energy Exchange (EEX), 136
European Investment Bank, 70
European Union (EU), 52–53
Exchange traded derivatives (ETD), 126
contracts, 136
transactions, 137, 141, 143
External analysis, 30
ExxonMobil, 55
Fair value (FV), 13
Far value losses (FV losses), 182, 187
Federal Deposit Insurance Corporation (FDIC), 93, 100
Financed emissions, 56–57
Financial Conduct Authority (FCA), 58, 84
Financial crisis (2007–2008), 124–125
Financial institutions, 46, 67, 107, 111, 173–174
Financial market uncertainty, 43
Financial position, 49
Financial resilience, 49
Financial risks, emphasis on, 101
Financial Stability Board (FSB), 65–66, 87–88, 90, 104
Financial system, 91
First notice day, 197–198
First Republic Bank, 13, 93
Fixed bonds, 174
Flat curve and impact of market direction, 201–203
Flat yield curve, 201
Formal caps, 85
Forward starting swaps, 158–159
Forward yield curve, 171
Fossil fuel, 58
Fundamental Review of the Trading Book (FRTB), 96
Funding competition, 46
Funding concentration, 18
Funding mix optimisation, 43
Funding risks, 111
Funding sources, 68
Funds transfer pricing (FTP), 155
Furlough scheme, 82
Future prepayment rates, 176
Futures delivery
hedging the tail, 207–208
timing of delivery, 209–210
G-SIFI bank, 19–20
G20 (International organisations), 65–66, 87
General collateral (GC), 204
Gilt futures basis
balance sheet availability, 208–209
basic principles, 196–199
bond CTD, 199–204
carry and timing of delivery, 209–210
case study, 210–213
December 2022 gilt future, 210–212
December 22/March 23 Gilt Roll, 212–213
definitions, 196–198
delivery, 198–199
issues, 208–210
selected basis trading strategies, 206–208
theory of net basis pricing, 204–206
trading basis, 198
Gilt-edged market maker (GEMM), 204
Gilts, 197–198
delivery process, 198–199
market, 204
Global Financial Crisis (GFC), 87
Global warming, 65
Globalisation, 54
Globally Systemically Important Banks (G-SIBs), 19, 87–88, 140–141
Governance, 70
frameworks, 19, 21
Governing principles, 79–80
Governments, 54
policy, 175
Green Bond Framework, 72
Green bonds, 65–66, 68
for banks, 67–68, 70
issuance, 69–70
issuing, 72
valuation of, 66–67
Green finance, 65–66
Green financing, 67
Greener economy, 58
Greenhouse gas emissions (GHG emissions), 56–57
Greenium, 66–67
Greenwashing, 58–59, 98
Gross basis, 196
Gross domestic product (GDP), 44, 48–49
Hedge positions, 175–176
liquidation of, 129–132
Hedging, 159
approach, 159
mortgage, 172
prepayment, 164–166
solution, 162–163
strategies, 158–159, 175
structural, 158–162
High inflation environment, 45
High-rate environment, 167
Historical data, 34
insights, 176
Hold to Maturity/Collect securities (HTC&S securities), 151
Home equity value, 174
Housing market strength, 173
HQLA availability, 111
Human rights, 52
Implied repo rate, 196
Indirect credit exposure, 111
Indirect investment exposure, 111
Industry body developments
monitoring, 107
selective regulatory and industry body publications pertaining to cryptos, 107–110
Inflation, 44, 48
Inflationary pressures, 48
Initial Margin, 125
Innovation, 9–10
differentiation through, 10
Insufficient initial margin, 132–134
losses from counterparty default on Viacom CBS total return swaps, 133–134
Integrity, 84
Interconnectedness risks, 111
Intercontinental Exchange (ICE), 136, 198–199
Interest rate incentives, 173
Interest Rate Option (IRO), 165
Interest rates, 44, 46, 170
outlook, 150–151
volatility, 81
Interest Transfer Pricing (ITP), 149
Interest-rate risk (IRR), 147, 169, 181
Interest-rate risk in banking book (IRRBB), 13, 15, 147, 157, 165, 181, 183
interest rate outlook, 150–151
legacy process architecture, 147–150
need for balance sheet optimisation, 151–152
target operating model in treasury, 153–156
Internal analysis, 30
Internal and external factors in banking, 174
Internal NMD models, 191
Internal rate of return (IRR), 13, 15, 159, 199–200
Internal ratings-based approach (IRB), 139–140
International Capital Market Association (ICMA), 72
International Finance Corporation (IFC), 71
International Financial Reporting Standard (IFRS), 124, 151
International organisations, 65–66
International Organization of Securities Commissions (IOSCO), 124–125
International Sustainability Standards Board (ISSB), 95
International Swaps and Derivatives Association (ISDA), 125
Investing, 43
Investors, 66, 94
increased scrutiny, 152–153
Just Transition, 64
Key performance indicators (KPIs), 27, 69–70
Key risk indicators (KRIs), 36–37, 69–70
Know your customer (KYC), 7, 91
Knowing the customer, 82–85
Legacy process architecture, 147–150
based in Silos, 148
calculations, 149–150
data, 149
modelling/scenarios, 149
process, 149
reporting, 150
Leverage ratio, 96
Liability chain, 136–137
Liability Driven Investment (LDI), 91
Liability management programme, 71
Liability risks, 101
LIBOR, 89
Liquid cash ratio, 17–18
Liquidation of hedge positions, 129–132
Viacom CBS share price and trading volume, 130
Liquidity challenges, 169
for energy firms, 135–136
Liquidity Coverage Ratio (LCR), 15
Liquidity risks, 25–26, 111
management, 6
Liquidity Transfer Pricing (LTP), 149
Loan-to-value (LTV), 43–44
ratios, 174
Loans, 166
defaults, 46
origination process, 166
prepayments, 169
London Institute of Banking and Finance, The (LIBF), 25–26
Long-term horizon, 101–103
Losses, 132–134
Low interest rates, 42–44
Lower/net zero carbon economy, 56
Lowest net basis, 199–200
Machine learning, 7–9, 95
Macroeconomic conditions, 47
Macroeconomic forces, 47–48
Macroeconomic theory, 175
of prepayments, 173
Macroeconomics, 173
‘March 2020 Episode’, The, 89
Margin calls, collapse triggered by, 128
Margin compression, 157
Margin shortfalls, 136
Market adaptation, 44–45
Market anomalies, 86
Market direction, flat curve and impact of, 201–203
Market manipulations
incentives for, 127–128
sensitivity of total return swap variation margin cash flows, 128
Market risk, 25–26
Market shocks, 111
Materiality of structural IRR, 182–184
Mis-selling activity, 84
Mixed methods, 35
Mobile banking, 152
Modelling prepayments, 169
Modified duration, 202
Monetary policy, 44
Money printing. See Quantitative easing
Mortgage prepayment analysis, 169
Mortgage product lifecycle, 175
Mortgage term assessment, 172
Moving average (MA), 181
Nasdaq OMX, 136
Nationally Determined Contributions (NDCs), 66
Net asset value (NAV), 126
Net basis, 196
calculation, 199–200
pricing theory, 204–206
seller’s options, 204–205
valuation, 199–200
value, 205–206
Net interest margin (NIM), 7, 149, 183
Neutral interest rate, 48
Non-Financial Bank Intermediaries (NBFIs), 90–91
Non-financial entities (NFE), 124–125, 135
Non-maturing deposits (NMDs), 47–48, 181
duration caps on, 191
hedging, 184, 192
modelling, 163
performance of NMD investment book, 185–188
Non-participation, monitoring and managing risks of, 111
Non-systemic banking institutions, 13
Office of Strategic Management (OSM), 37
Office of the Comptroller of the Currency (OCC), 100
Open banking, 8
Operational risk, 25–26
Organisational strategy, 26
Other Comprehensive Income (OCI), 187
Over-the-counter (OTC), 124–125
Overhedging, 175
Oversight committees, 31
Performance measurement, 7
Personal Protection Insurance (PPI), 84
Physical risks, 57, 101
‘Pillar 2 liquidity’ guidance from regulatory authority (PRA), 15
Pipeline hedging, 157–158
Pipeline risk, 158–162
Political, economic, social, technological, legal and environmental (PESTLE), 30
Portfolio management, 32
Positive carry bonds, 196
Post-pandemic inflation, 92
Potential future exposure (PFE), 139–140
Potential risk of loss, 85
Power futures, 138
Predicting Customer Behaviour, 173
Predictive analytics, 8–9
Prepayment assumptions, 175–176
Prepayment event, 164
Prepayment hedging, 164–166
Prepayment methodology, 171
Prepayment phenomenon, 164
Prepayment risk exposure, 164
Preserving integrity, 86
Price value of 01 (PV01), 202
Probability of default (PD), 85, 139–140
Process improvement, 33
Profitability measurement, 7
Project management, 32–33
Project Portfolio management, 33–34
Proportionality in prepayments, 175
Prudential Regulatory Authority (PRA), 69
Qualitative judgement, 34
Quality of delivery, 205
Quantitative easing, 42, 44, 173–174
Quantitative tightening, 44–46
Rate differential, 175
Rate incentive approach, 169–170, 172, 175
alternative theories of customer prepayments, 173–174
background, 171–172
ERCs, 174–175
retrospective testing, 172–173
Re-investment process, 186, 188–190
Realistic projections, 176
Recency bias, 41
Refinancing rate, 171
RegTech, 96
Regulation, 79–80
Regulatory and industry body developments
monitoring, 107
selective regulatory and industry body publications, 107–110
Regulatory bodies, 98
Regulatory concepts of stable and core NMDs, 182
Regulatory policy, 57
Relative value analysis, 203
Replacement cost (RC), 139–140
Replacement value, 124
Reporting process, 156
Repurchase agreement (“Repo”), 196
market, 204
transaction, 196, 204
Reputation, 79
Resilient banks, competitive priorities for, 12
Retrospective analysis, 172, 188, 190
Retrospective testing, 172–173
Return on assets (ROA), 7, 27
Return on capital (ROC), 27–28
Return on equity (ROE), 7, 27, 183
Return on invest (ROI), 34–35
Reverse repo, 196–197
Riding the yield curve strategy, 157
Ring-fencing, 80
Risk, 25–26
appetite, 43–44, 85–86
for banks as clearers, 137–138
complex liability chains, 136–137
culture, 18, 21, 80
in energy crisis, 134–138
huge margin shortfalls, 136
issues, 83
landscape for banks, 5
liquidity challenges for energy firms, 135–136
migration, 86
mitigation, 68
of non-participation, monitoring and managing, 111
register, 34
spike in energy prices, 134–135
Risk coverage, 101
risk types and associated climate-related risk drivers, 102
Risk management, 5, 7, 85–86
ALM, 6
building robust risk management frameworks and balance sheet management, 5–7
capital adequacy and capital allocation, 6
credit risk management, 6–7
evolving risk landscape for banks, 5
liquidity risk management, 6
principles, 18
profitability and performance measurement, 7
strengthening cybersecurity and compliance, 7
Risk management frameworks (RMF), 6, 68
Risk-weighted Assets (RWA), 139–140
for clearing exposures with clients, 141–144
potential future exposure, RWA and Basel III total capital requirement, 143
Risk–Adjusted Return on Capital methods (RAROC methods), 6, 34–35
Robotic process automation (RPA), 4
Safeguarding stability in uncertain times, 5–7
Savings products, 174
Savings ratio, 46–48
Scenario analyses, 103
Scenario planning, 31
Scenario testing, 86
Scorecards, 32
Seasonality in lending, 174
Senate Banking Committee, 93
Shadow banking, 90, 111
Signature Bank, 13, 93
Silicon Valley Bank (SVB), 13, 16, 92, 182
lessons from failure of, 190–191
recent examples of bank failures include, 80
Simulation, 132–134
Social justice, 51–52
Social media risk, 18
Solid governance model, 71
Stable balances, 190–191
Stablecoins, 111
Stamp duty holiday, 170, 173
Standard Initial Margin Model (SIMM), 125
Standardized Approach for CCR (SA-CCR), 138–140
Stepped fees, 174–175
Strategic choices, 27
Strategic Direction and Monitoring Committee (SDMC), 37
Strategic execution and monitoring, 33
Strategic learning, 33–34
Strategic management, 26–27
Strategic partnerships, 9
benefits of strategic partnerships in banking, 9
establishing effective partnership strategies, 9
Strategic planning, 32
Strategic risk, 25–26
Strategic risk management, 36
bank strategy, 27–28, 30–31
in banking, 28–29
cycle, 31–34
embedding strategic risk management in banks, 37–38
modelling, 34–36
other risk, 25–26
proposed strategic risk management system, 36–38
SDMC, 37
sources of, 29
strategy vs. strategic management, 26–27
Strategic Risk Register, 37
Strategy, 26–27, 34
development, 33–34, 37
maps, 32
Strengths, weaknesses, opportunities and threats analysis (SWOT analysis), 25–26, 30
Stress testing, 86, 103
Structural hedging, 158–162
current accounts, 162–163
example, 158–159, 162–163
Structural interest-rate risk hedging
duration caps on NMDs, 191
lessons from failure of SVB, 190–191
materiality of structural IRR, 182–184
performance of NMD investment book, 185–188
practical implications, 191–192
stable and core balances, 190–191
suspending re-investment, 188–190
theory of cyclical smoothing, 184–185
Supervisory Principles, 114–121
SupTech, 96
Sustainability, 67
nurturing, 82
Sustainable banking
bank strategy and communication, 80–81
governing principles, stability and regulation, 79–80
nurturing sustainability and not panicking, 82
recent examples of bank failures include SVB and CS, 80
Sustainable bonds, 65
Sustainable finance, 71–72
Sustainable/sustainability, 56–57
Swap position management, 175
Swaptions, 159
Swiss National Bank, The, 94
Target operating model in treasury, 153–156
Term funding, 45
Theory of cyclical smoothing, 184–185
Timing of delivery, 205
Top-down processes, 69–70
Total return swaps (TRS), 127
Trade-offs, 27–28
Transition risks, 57, 101
Treasury, 159–160
architecture, 147–149
cash flow engine, 153
dataset, 153
modelling team, 155–156
risk, 149
standpoint, 164
target operating model in, 153–156
Treat customers fairly, 84
Trust, 86
Underhedging, 175
Unemployment rates, 45
Union Bank of Switzerland (UBS), 19
United Nation (UN), 51–52
United States’ generally accepted accounting practices (US-GAAP), 124
US Federal Reserve, 92
US Regional banks, 92–93
US Securities and Exchange Commission (SEC), 126
lawsuit, 127–129
Value at Risk (VaR), 35
Variation margin, 125
Viacom CBS, 129–130
Volcker Rule, 87
Volume-Weighted-Average Price (VWAP), 130–131, 141
Working together, 86
World Economic Forum, 54
Early repayment charges (ERCs)
, 174–176
Early warning indicator
, 81
Economic Capital
, 34–35
Economic equilibrium
, 48
Economic forecasts
, 47
Economic growth
, 48
Economic indicators
, 42
Economic stimulus
, 48
Economic uncertainty
, 170
Edge computing
, 5
Effective balance sheet management
, 6–7
Energy crisis
, 134–138
clearing risks in
, 134–138
Energy firms, liquidity challenges for
, 135–136
Energy prices, spike in
, 134–135
Enterprise Risk Management (ERM)
, 26
Enterprise Risk Oversight Committee (EROC)
, 36–37
Enterprise wide funds transfer pricing framework
, 155
Environmental, social and governance (ESG)
, 58–59, 71
Environmental racism
, 54
Ether
, 106
European Banking Authority (EBA)
, 69, 191
European Central Bank (ECB)
, 101, 138
European Commodity Clearing (ECC)
, 141–143
European Energy Exchange (EEX)
, 136
European Investment Bank
, 70
European Union (EU)
, 52–53
Exchange traded derivatives (ETD)
, 126
contracts
, 136
transactions
, 137, 141, 143
External analysis
, 30
ExxonMobil
, 55
Fair value (FV)
, 13
Far value losses (FV losses)
, 182, 187
Federal Deposit Insurance Corporation (FDIC)
, 93, 100
Financed emissions
, 56–57
Financial Conduct Authority (FCA)
, 58, 84
Financial crisis (2007–2008)
, 124–125
Financial institutions
, 46, 67, 107, 111, 173–174
Financial market uncertainty
, 43
Financial position
, 49
Financial resilience
, 49
Financial risks, emphasis on
, 101
Financial Stability Board (FSB)
, 65–66, 87–88, 90, 104
Financial system
, 91
First notice day
, 197–198
First Republic Bank
, 13, 93
Fixed bonds
, 174
Flat curve and impact of market direction
, 201–203
Flat yield curve
, 201
Formal caps
, 85
Forward starting swaps
, 158–159
Forward yield curve
, 171
Fossil fuel
, 58
Fundamental Review of the Trading Book (FRTB)
, 96
Funding competition
, 46
Funding concentration
, 18
Funding mix optimisation
, 43
Funding risks
, 111
Funding sources
, 68
Funds transfer pricing (FTP)
, 155
Furlough scheme
, 82
Future prepayment rates
, 176
Futures delivery
hedging the tail
, 207–208
timing of delivery
, 209–210
G-SIFI bank, 19–20
G20 (International organisations), 65–66, 87
General collateral (GC), 204
Gilt futures basis
balance sheet availability, 208–209
basic principles, 196–199
bond CTD, 199–204
carry and timing of delivery, 209–210
case study, 210–213
December 2022 gilt future, 210–212
December 22/March 23 Gilt Roll, 212–213
definitions, 196–198
delivery, 198–199
issues, 208–210
selected basis trading strategies, 206–208
theory of net basis pricing, 204–206
trading basis, 198
Gilt-edged market maker (GEMM), 204
Gilts, 197–198
delivery process, 198–199
market, 204
Global Financial Crisis (GFC), 87
Global warming, 65
Globalisation, 54
Globally Systemically Important Banks (G-SIBs), 19, 87–88, 140–141
Governance, 70
frameworks, 19, 21
Governing principles, 79–80
Governments, 54
policy, 175
Green Bond Framework, 72
Green bonds, 65–66, 68
for banks, 67–68, 70
issuance, 69–70
issuing, 72
valuation of, 66–67
Green finance, 65–66
Green financing, 67
Greener economy, 58
Greenhouse gas emissions (GHG emissions), 56–57
Greenium, 66–67
Greenwashing, 58–59, 98
Gross basis, 196
Gross domestic product (GDP), 44, 48–49
Hedge positions, 175–176
liquidation of, 129–132
Hedging, 159
approach, 159
mortgage, 172
prepayment, 164–166
solution, 162–163
strategies, 158–159, 175
structural, 158–162
High inflation environment, 45
High-rate environment, 167
Historical data, 34
insights, 176
Hold to Maturity/Collect securities (HTC&S securities), 151
Home equity value, 174
Housing market strength, 173
HQLA availability, 111
Human rights, 52
Implied repo rate, 196
Indirect credit exposure, 111
Indirect investment exposure, 111
Industry body developments
monitoring, 107
selective regulatory and industry body publications pertaining to cryptos, 107–110
Inflation, 44, 48
Inflationary pressures, 48
Initial Margin, 125
Innovation, 9–10
differentiation through, 10
Insufficient initial margin, 132–134
losses from counterparty default on Viacom CBS total return swaps, 133–134
Integrity, 84
Interconnectedness risks, 111
Intercontinental Exchange (ICE), 136, 198–199
Interest rate incentives, 173
Interest Rate Option (IRO), 165
Interest rates, 44, 46, 170
outlook, 150–151
volatility, 81
Interest Transfer Pricing (ITP), 149
Interest-rate risk (IRR), 147, 169, 181
Interest-rate risk in banking book (IRRBB), 13, 15, 147, 157, 165, 181, 183
interest rate outlook, 150–151
legacy process architecture, 147–150
need for balance sheet optimisation, 151–152
target operating model in treasury, 153–156
Internal analysis, 30
Internal and external factors in banking, 174
Internal NMD models, 191
Internal rate of return (IRR), 13, 15, 159, 199–200
Internal ratings-based approach (IRB), 139–140
International Capital Market Association (ICMA), 72
International Finance Corporation (IFC), 71
International Financial Reporting Standard (IFRS), 124, 151
International organisations, 65–66
International Organization of Securities Commissions (IOSCO), 124–125
International Sustainability Standards Board (ISSB), 95
International Swaps and Derivatives Association (ISDA), 125
Investing, 43
Investors, 66, 94
increased scrutiny, 152–153
Just Transition, 64
Key performance indicators (KPIs), 27, 69–70
Key risk indicators (KRIs), 36–37, 69–70
Know your customer (KYC), 7, 91
Knowing the customer, 82–85
Legacy process architecture, 147–150
based in Silos, 148
calculations, 149–150
data, 149
modelling/scenarios, 149
process, 149
reporting, 150
Leverage ratio, 96
Liability chain, 136–137
Liability Driven Investment (LDI), 91
Liability management programme, 71
Liability risks, 101
LIBOR, 89
Liquid cash ratio, 17–18
Liquidation of hedge positions, 129–132
Viacom CBS share price and trading volume, 130
Liquidity challenges, 169
for energy firms, 135–136
Liquidity Coverage Ratio (LCR), 15
Liquidity risks, 25–26, 111
management, 6
Liquidity Transfer Pricing (LTP), 149
Loan-to-value (LTV), 43–44
ratios, 174
Loans, 166
defaults, 46
origination process, 166
prepayments, 169
London Institute of Banking and Finance, The (LIBF), 25–26
Long-term horizon, 101–103
Losses, 132–134
Low interest rates, 42–44
Lower/net zero carbon economy, 56
Lowest net basis, 199–200
Machine learning, 7–9, 95
Macroeconomic conditions, 47
Macroeconomic forces, 47–48
Macroeconomic theory, 175
of prepayments, 173
Macroeconomics, 173
‘March 2020 Episode’, The, 89
Margin calls, collapse triggered by, 128
Margin compression, 157
Margin shortfalls, 136
Market adaptation, 44–45
Market anomalies, 86
Market direction, flat curve and impact of, 201–203
Market manipulations
incentives for, 127–128
sensitivity of total return swap variation margin cash flows, 128
Market risk, 25–26
Market shocks, 111
Materiality of structural IRR, 182–184
Mis-selling activity, 84
Mixed methods, 35
Mobile banking, 152
Modelling prepayments, 169
Modified duration, 202
Monetary policy, 44
Money printing. See Quantitative easing
Mortgage prepayment analysis, 169
Mortgage product lifecycle, 175
Mortgage term assessment, 172
Moving average (MA), 181
Nasdaq OMX, 136
Nationally Determined Contributions (NDCs), 66
Net asset value (NAV), 126
Net basis, 196
calculation, 199–200
pricing theory, 204–206
seller’s options, 204–205
valuation, 199–200
value, 205–206
Net interest margin (NIM), 7, 149, 183
Neutral interest rate, 48
Non-Financial Bank Intermediaries (NBFIs), 90–91
Non-financial entities (NFE), 124–125, 135
Non-maturing deposits (NMDs), 47–48, 181
duration caps on, 191
hedging, 184, 192
modelling, 163
performance of NMD investment book, 185–188
Non-participation, monitoring and managing risks of, 111
Non-systemic banking institutions, 13
Office of Strategic Management (OSM), 37
Office of the Comptroller of the Currency (OCC), 100
Open banking, 8
Operational risk, 25–26
Organisational strategy, 26
Other Comprehensive Income (OCI), 187
Over-the-counter (OTC), 124–125
Overhedging, 175
Oversight committees, 31
Performance measurement, 7
Personal Protection Insurance (PPI), 84
Physical risks, 57, 101
‘Pillar 2 liquidity’ guidance from regulatory authority (PRA), 15
Pipeline hedging, 157–158
Pipeline risk, 158–162
Political, economic, social, technological, legal and environmental (PESTLE), 30
Portfolio management, 32
Positive carry bonds, 196
Post-pandemic inflation, 92
Potential future exposure (PFE), 139–140
Potential risk of loss, 85
Power futures, 138
Predicting Customer Behaviour, 173
Predictive analytics, 8–9
Prepayment assumptions, 175–176
Prepayment event, 164
Prepayment hedging, 164–166
Prepayment methodology, 171
Prepayment phenomenon, 164
Prepayment risk exposure, 164
Preserving integrity, 86
Price value of 01 (PV01), 202
Probability of default (PD), 85, 139–140
Process improvement, 33
Profitability measurement, 7
Project management, 32–33
Project Portfolio management, 33–34
Proportionality in prepayments, 175
Prudential Regulatory Authority (PRA), 69
Qualitative judgement, 34
Quality of delivery, 205
Quantitative easing, 42, 44, 173–174
Quantitative tightening, 44–46
Rate differential, 175
Rate incentive approach, 169–170, 172, 175
alternative theories of customer prepayments, 173–174
background, 171–172
ERCs, 174–175
retrospective testing, 172–173
Re-investment process, 186, 188–190
Realistic projections, 176
Recency bias, 41
Refinancing rate, 171
RegTech, 96
Regulation, 79–80
Regulatory and industry body developments
monitoring, 107
selective regulatory and industry body publications, 107–110
Regulatory bodies, 98
Regulatory concepts of stable and core NMDs, 182
Regulatory policy, 57
Relative value analysis, 203
Replacement cost (RC), 139–140
Replacement value, 124
Reporting process, 156
Repurchase agreement (“Repo”), 196
market, 204
transaction, 196, 204
Reputation, 79
Resilient banks, competitive priorities for, 12
Retrospective analysis, 172, 188, 190
Retrospective testing, 172–173
Return on assets (ROA), 7, 27
Return on capital (ROC), 27–28
Return on equity (ROE), 7, 27, 183
Return on invest (ROI), 34–35
Reverse repo, 196–197
Riding the yield curve strategy, 157
Ring-fencing, 80
Risk, 25–26
appetite, 43–44, 85–86
for banks as clearers, 137–138
complex liability chains, 136–137
culture, 18, 21, 80
in energy crisis, 134–138
huge margin shortfalls, 136
issues, 83
landscape for banks, 5
liquidity challenges for energy firms, 135–136
migration, 86
mitigation, 68
of non-participation, monitoring and managing, 111
register, 34
spike in energy prices, 134–135
Risk coverage, 101
risk types and associated climate-related risk drivers, 102
Risk management, 5, 7, 85–86
ALM, 6
building robust risk management frameworks and balance sheet management, 5–7
capital adequacy and capital allocation, 6
credit risk management, 6–7
evolving risk landscape for banks, 5
liquidity risk management, 6
principles, 18
profitability and performance measurement, 7
strengthening cybersecurity and compliance, 7
Risk management frameworks (RMF), 6, 68
Risk-weighted Assets (RWA), 139–140
for clearing exposures with clients, 141–144
potential future exposure, RWA and Basel III total capital requirement, 143
Risk–Adjusted Return on Capital methods (RAROC methods), 6, 34–35
Robotic process automation (RPA), 4
Safeguarding stability in uncertain times, 5–7
Savings products, 174
Savings ratio, 46–48
Scenario analyses, 103
Scenario planning, 31
Scenario testing, 86
Scorecards, 32
Seasonality in lending, 174
Senate Banking Committee, 93
Shadow banking, 90, 111
Signature Bank, 13, 93
Silicon Valley Bank (SVB), 13, 16, 92, 182
lessons from failure of, 190–191
recent examples of bank failures include, 80
Simulation, 132–134
Social justice, 51–52
Social media risk, 18
Solid governance model, 71
Stable balances, 190–191
Stablecoins, 111
Stamp duty holiday, 170, 173
Standard Initial Margin Model (SIMM), 125
Standardized Approach for CCR (SA-CCR), 138–140
Stepped fees, 174–175
Strategic choices, 27
Strategic Direction and Monitoring Committee (SDMC), 37
Strategic execution and monitoring, 33
Strategic learning, 33–34
Strategic management, 26–27
Strategic partnerships, 9
benefits of strategic partnerships in banking, 9
establishing effective partnership strategies, 9
Strategic planning, 32
Strategic risk, 25–26
Strategic risk management, 36
bank strategy, 27–28, 30–31
in banking, 28–29
cycle, 31–34
embedding strategic risk management in banks, 37–38
modelling, 34–36
other risk, 25–26
proposed strategic risk management system, 36–38
SDMC, 37
sources of, 29
strategy vs. strategic management, 26–27
Strategic Risk Register, 37
Strategy, 26–27, 34
development, 33–34, 37
maps, 32
Strengths, weaknesses, opportunities and threats analysis (SWOT analysis), 25–26, 30
Stress testing, 86, 103
Structural hedging, 158–162
current accounts, 162–163
example, 158–159, 162–163
Structural interest-rate risk hedging
duration caps on NMDs, 191
lessons from failure of SVB, 190–191
materiality of structural IRR, 182–184
performance of NMD investment book, 185–188
practical implications, 191–192
stable and core balances, 190–191
suspending re-investment, 188–190
theory of cyclical smoothing, 184–185
Supervisory Principles, 114–121
SupTech, 96
Sustainability, 67
nurturing, 82
Sustainable banking
bank strategy and communication, 80–81
governing principles, stability and regulation, 79–80
nurturing sustainability and not panicking, 82
recent examples of bank failures include SVB and CS, 80
Sustainable bonds, 65
Sustainable finance, 71–72
Sustainable/sustainability, 56–57
Swap position management, 175
Swaptions, 159
Swiss National Bank, The, 94
Target operating model in treasury, 153–156
Term funding, 45
Theory of cyclical smoothing, 184–185
Timing of delivery, 205
Top-down processes, 69–70
Total return swaps (TRS), 127
Trade-offs, 27–28
Transition risks, 57, 101
Treasury, 159–160
architecture, 147–149
cash flow engine, 153
dataset, 153
modelling team, 155–156
risk, 149
standpoint, 164
target operating model in, 153–156
Treat customers fairly, 84
Trust, 86
Underhedging, 175
Unemployment rates, 45
Union Bank of Switzerland (UBS), 19
United Nation (UN), 51–52
United States’ generally accepted accounting practices (US-GAAP), 124
US Federal Reserve, 92
US Regional banks, 92–93
US Securities and Exchange Commission (SEC), 126
lawsuit, 127–129
Value at Risk (VaR), 35
Variation margin, 125
Viacom CBS, 129–130
Volcker Rule, 87
Volume-Weighted-Average Price (VWAP), 130–131, 141
Working together, 86
World Economic Forum, 54
G-SIFI bank
, 19–20
G20 (International organisations)
, 65–66, 87
General collateral (GC)
, 204
Gilt futures basis
balance sheet availability
, 208–209
basic principles
, 196–199
bond CTD
, 199–204
carry and timing of delivery
, 209–210
case study
, 210–213
December 2022 gilt future
, 210–212
December 22/March 23 Gilt Roll
, 212–213
definitions
, 196–198
delivery
, 198–199
issues
, 208–210
selected basis trading strategies
, 206–208
theory of net basis pricing
, 204–206
trading basis
, 198
Gilt-edged market maker (GEMM)
, 204
Gilts
, 197–198
delivery process
, 198–199
market
, 204
Global Financial Crisis (GFC)
, 87
Global warming
, 65
Globalisation
, 54
Globally Systemically Important Banks (G-SIBs)
, 19, 87–88, 140–141
Governance
, 70
frameworks
, 19, 21
Governing principles
, 79–80
Governments
, 54
policy
, 175
Green Bond Framework
, 72
Green bonds
, 65–66, 68
for banks
, 67–68, 70
issuance
, 69–70
issuing
, 72
valuation of
, 66–67
Green finance
, 65–66
Green financing
, 67
Greener economy
, 58
Greenhouse gas emissions (GHG emissions)
, 56–57
Greenium
, 66–67
Greenwashing
, 58–59, 98
Gross basis
, 196
Gross domestic product (GDP)
, 44, 48–49
Hedge positions
, 175–176
liquidation of
, 129–132
Hedging
, 159
approach
, 159
mortgage
, 172
prepayment
, 164–166
solution
, 162–163
strategies
, 158–159, 175
structural
, 158–162
High inflation environment
, 45
High-rate environment
, 167
Historical data
, 34
insights
, 176
Hold to Maturity/Collect securities (HTC&S securities)
, 151
Home equity value
, 174
Housing market strength
, 173
HQLA availability
, 111
Human rights
, 52
Implied repo rate, 196
Indirect credit exposure, 111
Indirect investment exposure, 111
Industry body developments
monitoring, 107
selective regulatory and industry body publications pertaining to cryptos, 107–110
Inflation, 44, 48
Inflationary pressures, 48
Initial Margin, 125
Innovation, 9–10
differentiation through, 10
Insufficient initial margin, 132–134
losses from counterparty default on Viacom CBS total return swaps, 133–134
Integrity, 84
Interconnectedness risks, 111
Intercontinental Exchange (ICE), 136, 198–199
Interest rate incentives, 173
Interest Rate Option (IRO), 165
Interest rates, 44, 46, 170
outlook, 150–151
volatility, 81
Interest Transfer Pricing (ITP), 149
Interest-rate risk (IRR), 147, 169, 181
Interest-rate risk in banking book (IRRBB), 13, 15, 147, 157, 165, 181, 183
interest rate outlook, 150–151
legacy process architecture, 147–150
need for balance sheet optimisation, 151–152
target operating model in treasury, 153–156
Internal analysis, 30
Internal and external factors in banking, 174
Internal NMD models, 191
Internal rate of return (IRR), 13, 15, 159, 199–200
Internal ratings-based approach (IRB), 139–140
International Capital Market Association (ICMA), 72
International Finance Corporation (IFC), 71
International Financial Reporting Standard (IFRS), 124, 151
International organisations, 65–66
International Organization of Securities Commissions (IOSCO), 124–125
International Sustainability Standards Board (ISSB), 95
International Swaps and Derivatives Association (ISDA), 125
Investing, 43
Investors, 66, 94
increased scrutiny, 152–153
Just Transition, 64
Key performance indicators (KPIs), 27, 69–70
Key risk indicators (KRIs), 36–37, 69–70
Know your customer (KYC), 7, 91
Knowing the customer, 82–85
Legacy process architecture, 147–150
based in Silos, 148
calculations, 149–150
data, 149
modelling/scenarios, 149
process, 149
reporting, 150
Leverage ratio, 96
Liability chain, 136–137
Liability Driven Investment (LDI), 91
Liability management programme, 71
Liability risks, 101
LIBOR, 89
Liquid cash ratio, 17–18
Liquidation of hedge positions, 129–132
Viacom CBS share price and trading volume, 130
Liquidity challenges, 169
for energy firms, 135–136
Liquidity Coverage Ratio (LCR), 15
Liquidity risks, 25–26, 111
management, 6
Liquidity Transfer Pricing (LTP), 149
Loan-to-value (LTV), 43–44
ratios, 174
Loans, 166
defaults, 46
origination process, 166
prepayments, 169
London Institute of Banking and Finance, The (LIBF), 25–26
Long-term horizon, 101–103
Losses, 132–134
Low interest rates, 42–44
Lower/net zero carbon economy, 56
Lowest net basis, 199–200
Machine learning, 7–9, 95
Macroeconomic conditions, 47
Macroeconomic forces, 47–48
Macroeconomic theory, 175
of prepayments, 173
Macroeconomics, 173
‘March 2020 Episode’, The, 89
Margin calls, collapse triggered by, 128
Margin compression, 157
Margin shortfalls, 136
Market adaptation, 44–45
Market anomalies, 86
Market direction, flat curve and impact of, 201–203
Market manipulations
incentives for, 127–128
sensitivity of total return swap variation margin cash flows, 128
Market risk, 25–26
Market shocks, 111
Materiality of structural IRR, 182–184
Mis-selling activity, 84
Mixed methods, 35
Mobile banking, 152
Modelling prepayments, 169
Modified duration, 202
Monetary policy, 44
Money printing. See Quantitative easing
Mortgage prepayment analysis, 169
Mortgage product lifecycle, 175
Mortgage term assessment, 172
Moving average (MA), 181
Nasdaq OMX, 136
Nationally Determined Contributions (NDCs), 66
Net asset value (NAV), 126
Net basis, 196
calculation, 199–200
pricing theory, 204–206
seller’s options, 204–205
valuation, 199–200
value, 205–206
Net interest margin (NIM), 7, 149, 183
Neutral interest rate, 48
Non-Financial Bank Intermediaries (NBFIs), 90–91
Non-financial entities (NFE), 124–125, 135
Non-maturing deposits (NMDs), 47–48, 181
duration caps on, 191
hedging, 184, 192
modelling, 163
performance of NMD investment book, 185–188
Non-participation, monitoring and managing risks of, 111
Non-systemic banking institutions, 13
Office of Strategic Management (OSM), 37
Office of the Comptroller of the Currency (OCC), 100
Open banking, 8
Operational risk, 25–26
Organisational strategy, 26
Other Comprehensive Income (OCI), 187
Over-the-counter (OTC), 124–125
Overhedging, 175
Oversight committees, 31
Performance measurement, 7
Personal Protection Insurance (PPI), 84
Physical risks, 57, 101
‘Pillar 2 liquidity’ guidance from regulatory authority (PRA), 15
Pipeline hedging, 157–158
Pipeline risk, 158–162
Political, economic, social, technological, legal and environmental (PESTLE), 30
Portfolio management, 32
Positive carry bonds, 196
Post-pandemic inflation, 92
Potential future exposure (PFE), 139–140
Potential risk of loss, 85
Power futures, 138
Predicting Customer Behaviour, 173
Predictive analytics, 8–9
Prepayment assumptions, 175–176
Prepayment event, 164
Prepayment hedging, 164–166
Prepayment methodology, 171
Prepayment phenomenon, 164
Prepayment risk exposure, 164
Preserving integrity, 86
Price value of 01 (PV01), 202
Probability of default (PD), 85, 139–140
Process improvement, 33
Profitability measurement, 7
Project management, 32–33
Project Portfolio management, 33–34
Proportionality in prepayments, 175
Prudential Regulatory Authority (PRA), 69
Qualitative judgement, 34
Quality of delivery, 205
Quantitative easing, 42, 44, 173–174
Quantitative tightening, 44–46
Rate differential, 175
Rate incentive approach, 169–170, 172, 175
alternative theories of customer prepayments, 173–174
background, 171–172
ERCs, 174–175
retrospective testing, 172–173
Re-investment process, 186, 188–190
Realistic projections, 176
Recency bias, 41
Refinancing rate, 171
RegTech, 96
Regulation, 79–80
Regulatory and industry body developments
monitoring, 107
selective regulatory and industry body publications, 107–110
Regulatory bodies, 98
Regulatory concepts of stable and core NMDs, 182
Regulatory policy, 57
Relative value analysis, 203
Replacement cost (RC), 139–140
Replacement value, 124
Reporting process, 156
Repurchase agreement (“Repo”), 196
market, 204
transaction, 196, 204
Reputation, 79
Resilient banks, competitive priorities for, 12
Retrospective analysis, 172, 188, 190
Retrospective testing, 172–173
Return on assets (ROA), 7, 27
Return on capital (ROC), 27–28
Return on equity (ROE), 7, 27, 183
Return on invest (ROI), 34–35
Reverse repo, 196–197
Riding the yield curve strategy, 157
Ring-fencing, 80
Risk, 25–26
appetite, 43–44, 85–86
for banks as clearers, 137–138
complex liability chains, 136–137
culture, 18, 21, 80
in energy crisis, 134–138
huge margin shortfalls, 136
issues, 83
landscape for banks, 5
liquidity challenges for energy firms, 135–136
migration, 86
mitigation, 68
of non-participation, monitoring and managing, 111
register, 34
spike in energy prices, 134–135
Risk coverage, 101
risk types and associated climate-related risk drivers, 102
Risk management, 5, 7, 85–86
ALM, 6
building robust risk management frameworks and balance sheet management, 5–7
capital adequacy and capital allocation, 6
credit risk management, 6–7
evolving risk landscape for banks, 5
liquidity risk management, 6
principles, 18
profitability and performance measurement, 7
strengthening cybersecurity and compliance, 7
Risk management frameworks (RMF), 6, 68
Risk-weighted Assets (RWA), 139–140
for clearing exposures with clients, 141–144
potential future exposure, RWA and Basel III total capital requirement, 143
Risk–Adjusted Return on Capital methods (RAROC methods), 6, 34–35
Robotic process automation (RPA), 4
Safeguarding stability in uncertain times, 5–7
Savings products, 174
Savings ratio, 46–48
Scenario analyses, 103
Scenario planning, 31
Scenario testing, 86
Scorecards, 32
Seasonality in lending, 174
Senate Banking Committee, 93
Shadow banking, 90, 111
Signature Bank, 13, 93
Silicon Valley Bank (SVB), 13, 16, 92, 182
lessons from failure of, 190–191
recent examples of bank failures include, 80
Simulation, 132–134
Social justice, 51–52
Social media risk, 18
Solid governance model, 71
Stable balances, 190–191
Stablecoins, 111
Stamp duty holiday, 170, 173
Standard Initial Margin Model (SIMM), 125
Standardized Approach for CCR (SA-CCR), 138–140
Stepped fees, 174–175
Strategic choices, 27
Strategic Direction and Monitoring Committee (SDMC), 37
Strategic execution and monitoring, 33
Strategic learning, 33–34
Strategic management, 26–27
Strategic partnerships, 9
benefits of strategic partnerships in banking, 9
establishing effective partnership strategies, 9
Strategic planning, 32
Strategic risk, 25–26
Strategic risk management, 36
bank strategy, 27–28, 30–31
in banking, 28–29
cycle, 31–34
embedding strategic risk management in banks, 37–38
modelling, 34–36
other risk, 25–26
proposed strategic risk management system, 36–38
SDMC, 37
sources of, 29
strategy vs. strategic management, 26–27
Strategic Risk Register, 37
Strategy, 26–27, 34
development, 33–34, 37
maps, 32
Strengths, weaknesses, opportunities and threats analysis (SWOT analysis), 25–26, 30
Stress testing, 86, 103
Structural hedging, 158–162
current accounts, 162–163
example, 158–159, 162–163
Structural interest-rate risk hedging
duration caps on NMDs, 191
lessons from failure of SVB, 190–191
materiality of structural IRR, 182–184
performance of NMD investment book, 185–188
practical implications, 191–192
stable and core balances, 190–191
suspending re-investment, 188–190
theory of cyclical smoothing, 184–185
Supervisory Principles, 114–121
SupTech, 96
Sustainability, 67
nurturing, 82
Sustainable banking
bank strategy and communication, 80–81
governing principles, stability and regulation, 79–80
nurturing sustainability and not panicking, 82
recent examples of bank failures include SVB and CS, 80
Sustainable bonds, 65
Sustainable finance, 71–72
Sustainable/sustainability, 56–57
Swap position management, 175
Swaptions, 159
Swiss National Bank, The, 94
Target operating model in treasury, 153–156
Term funding, 45
Theory of cyclical smoothing, 184–185
Timing of delivery, 205
Top-down processes, 69–70
Total return swaps (TRS), 127
Trade-offs, 27–28
Transition risks, 57, 101
Treasury, 159–160
architecture, 147–149
cash flow engine, 153
dataset, 153
modelling team, 155–156
risk, 149
standpoint, 164
target operating model in, 153–156
Treat customers fairly, 84
Trust, 86
Underhedging, 175
Unemployment rates, 45
Union Bank of Switzerland (UBS), 19
United Nation (UN), 51–52
United States’ generally accepted accounting practices (US-GAAP), 124
US Federal Reserve, 92
US Regional banks, 92–93
US Securities and Exchange Commission (SEC), 126
lawsuit, 127–129
Value at Risk (VaR), 35
Variation margin, 125
Viacom CBS, 129–130
Volcker Rule, 87
Volume-Weighted-Average Price (VWAP), 130–131, 141
Working together, 86
World Economic Forum, 54
Implied repo rate
, 196
Indirect credit exposure
, 111
Indirect investment exposure
, 111
Industry body developments
monitoring
, 107
selective regulatory and industry body publications pertaining to cryptos
, 107–110
Inflation
, 44, 48
Inflationary pressures
, 48
Initial Margin
, 125
Innovation
, 9–10
differentiation through
, 10
Insufficient initial margin
, 132–134
losses from counterparty default on Viacom CBS total return swaps
, 133–134
Integrity
, 84
Interconnectedness risks
, 111
Intercontinental Exchange (ICE)
, 136, 198–199
Interest rate incentives
, 173
Interest Rate Option (IRO)
, 165
Interest rates
, 44, 46, 170
outlook
, 150–151
volatility
, 81
Interest Transfer Pricing (ITP)
, 149
Interest-rate risk (IRR)
, 147, 169, 181
Interest-rate risk in banking book (IRRBB)
, 13, 15, 147, 157, 165, 181, 183
interest rate outlook
, 150–151
legacy process architecture
, 147–150
need for balance sheet optimisation
, 151–152
target operating model in treasury
, 153–156
Internal analysis
, 30
Internal and external factors in banking
, 174
Internal NMD models
, 191
Internal rate of return (IRR)
, 13, 15, 159, 199–200
Internal ratings-based approach (IRB)
, 139–140
International Capital Market Association (ICMA)
, 72
International Finance Corporation (IFC)
, 71
International Financial Reporting Standard (IFRS)
, 124, 151
International organisations
, 65–66
International Organization of Securities Commissions (IOSCO)
, 124–125
International Sustainability Standards Board (ISSB)
, 95
International Swaps and Derivatives Association (ISDA)
, 125
Investing
, 43
Investors
, 66, 94
increased scrutiny
, 152–153
Just Transition
, 64
Key performance indicators (KPIs), 27, 69–70
Key risk indicators (KRIs), 36–37, 69–70
Know your customer (KYC), 7, 91
Knowing the customer, 82–85
Legacy process architecture, 147–150
based in Silos, 148
calculations, 149–150
data, 149
modelling/scenarios, 149
process, 149
reporting, 150
Leverage ratio, 96
Liability chain, 136–137
Liability Driven Investment (LDI), 91
Liability management programme, 71
Liability risks, 101
LIBOR, 89
Liquid cash ratio, 17–18
Liquidation of hedge positions, 129–132
Viacom CBS share price and trading volume, 130
Liquidity challenges, 169
for energy firms, 135–136
Liquidity Coverage Ratio (LCR), 15
Liquidity risks, 25–26, 111
management, 6
Liquidity Transfer Pricing (LTP), 149
Loan-to-value (LTV), 43–44
ratios, 174
Loans, 166
defaults, 46
origination process, 166
prepayments, 169
London Institute of Banking and Finance, The (LIBF), 25–26
Long-term horizon, 101–103
Losses, 132–134
Low interest rates, 42–44
Lower/net zero carbon economy, 56
Lowest net basis, 199–200
Machine learning, 7–9, 95
Macroeconomic conditions, 47
Macroeconomic forces, 47–48
Macroeconomic theory, 175
of prepayments, 173
Macroeconomics, 173
‘March 2020 Episode’, The, 89
Margin calls, collapse triggered by, 128
Margin compression, 157
Margin shortfalls, 136
Market adaptation, 44–45
Market anomalies, 86
Market direction, flat curve and impact of, 201–203
Market manipulations
incentives for, 127–128
sensitivity of total return swap variation margin cash flows, 128
Market risk, 25–26
Market shocks, 111
Materiality of structural IRR, 182–184
Mis-selling activity, 84
Mixed methods, 35
Mobile banking, 152
Modelling prepayments, 169
Modified duration, 202
Monetary policy, 44
Money printing. See Quantitative easing
Mortgage prepayment analysis, 169
Mortgage product lifecycle, 175
Mortgage term assessment, 172
Moving average (MA), 181
Nasdaq OMX, 136
Nationally Determined Contributions (NDCs), 66
Net asset value (NAV), 126
Net basis, 196
calculation, 199–200
pricing theory, 204–206
seller’s options, 204–205
valuation, 199–200
value, 205–206
Net interest margin (NIM), 7, 149, 183
Neutral interest rate, 48
Non-Financial Bank Intermediaries (NBFIs), 90–91
Non-financial entities (NFE), 124–125, 135
Non-maturing deposits (NMDs), 47–48, 181
duration caps on, 191
hedging, 184, 192
modelling, 163
performance of NMD investment book, 185–188
Non-participation, monitoring and managing risks of, 111
Non-systemic banking institutions, 13
Office of Strategic Management (OSM), 37
Office of the Comptroller of the Currency (OCC), 100
Open banking, 8
Operational risk, 25–26
Organisational strategy, 26
Other Comprehensive Income (OCI), 187
Over-the-counter (OTC), 124–125
Overhedging, 175
Oversight committees, 31
Performance measurement, 7
Personal Protection Insurance (PPI), 84
Physical risks, 57, 101
‘Pillar 2 liquidity’ guidance from regulatory authority (PRA), 15
Pipeline hedging, 157–158
Pipeline risk, 158–162
Political, economic, social, technological, legal and environmental (PESTLE), 30
Portfolio management, 32
Positive carry bonds, 196
Post-pandemic inflation, 92
Potential future exposure (PFE), 139–140
Potential risk of loss, 85
Power futures, 138
Predicting Customer Behaviour, 173
Predictive analytics, 8–9
Prepayment assumptions, 175–176
Prepayment event, 164
Prepayment hedging, 164–166
Prepayment methodology, 171
Prepayment phenomenon, 164
Prepayment risk exposure, 164
Preserving integrity, 86
Price value of 01 (PV01), 202
Probability of default (PD), 85, 139–140
Process improvement, 33
Profitability measurement, 7
Project management, 32–33
Project Portfolio management, 33–34
Proportionality in prepayments, 175
Prudential Regulatory Authority (PRA), 69
Qualitative judgement, 34
Quality of delivery, 205
Quantitative easing, 42, 44, 173–174
Quantitative tightening, 44–46
Rate differential, 175
Rate incentive approach, 169–170, 172, 175
alternative theories of customer prepayments, 173–174
background, 171–172
ERCs, 174–175
retrospective testing, 172–173
Re-investment process, 186, 188–190
Realistic projections, 176
Recency bias, 41
Refinancing rate, 171
RegTech, 96
Regulation, 79–80
Regulatory and industry body developments
monitoring, 107
selective regulatory and industry body publications, 107–110
Regulatory bodies, 98
Regulatory concepts of stable and core NMDs, 182
Regulatory policy, 57
Relative value analysis, 203
Replacement cost (RC), 139–140
Replacement value, 124
Reporting process, 156
Repurchase agreement (“Repo”), 196
market, 204
transaction, 196, 204
Reputation, 79
Resilient banks, competitive priorities for, 12
Retrospective analysis, 172, 188, 190
Retrospective testing, 172–173
Return on assets (ROA), 7, 27
Return on capital (ROC), 27–28
Return on equity (ROE), 7, 27, 183
Return on invest (ROI), 34–35
Reverse repo, 196–197
Riding the yield curve strategy, 157
Ring-fencing, 80
Risk, 25–26
appetite, 43–44, 85–86
for banks as clearers, 137–138
complex liability chains, 136–137
culture, 18, 21, 80
in energy crisis, 134–138
huge margin shortfalls, 136
issues, 83
landscape for banks, 5
liquidity challenges for energy firms, 135–136
migration, 86
mitigation, 68
of non-participation, monitoring and managing, 111
register, 34
spike in energy prices, 134–135
Risk coverage, 101
risk types and associated climate-related risk drivers, 102
Risk management, 5, 7, 85–86
ALM, 6
building robust risk management frameworks and balance sheet management, 5–7
capital adequacy and capital allocation, 6
credit risk management, 6–7
evolving risk landscape for banks, 5
liquidity risk management, 6
principles, 18
profitability and performance measurement, 7
strengthening cybersecurity and compliance, 7
Risk management frameworks (RMF), 6, 68
Risk-weighted Assets (RWA), 139–140
for clearing exposures with clients, 141–144
potential future exposure, RWA and Basel III total capital requirement, 143
Risk–Adjusted Return on Capital methods (RAROC methods), 6, 34–35
Robotic process automation (RPA), 4
Safeguarding stability in uncertain times, 5–7
Savings products, 174
Savings ratio, 46–48
Scenario analyses, 103
Scenario planning, 31
Scenario testing, 86
Scorecards, 32
Seasonality in lending, 174
Senate Banking Committee, 93
Shadow banking, 90, 111
Signature Bank, 13, 93
Silicon Valley Bank (SVB), 13, 16, 92, 182
lessons from failure of, 190–191
recent examples of bank failures include, 80
Simulation, 132–134
Social justice, 51–52
Social media risk, 18
Solid governance model, 71
Stable balances, 190–191
Stablecoins, 111
Stamp duty holiday, 170, 173
Standard Initial Margin Model (SIMM), 125
Standardized Approach for CCR (SA-CCR), 138–140
Stepped fees, 174–175
Strategic choices, 27
Strategic Direction and Monitoring Committee (SDMC), 37
Strategic execution and monitoring, 33
Strategic learning, 33–34
Strategic management, 26–27
Strategic partnerships, 9
benefits of strategic partnerships in banking, 9
establishing effective partnership strategies, 9
Strategic planning, 32
Strategic risk, 25–26
Strategic risk management, 36
bank strategy, 27–28, 30–31
in banking, 28–29
cycle, 31–34
embedding strategic risk management in banks, 37–38
modelling, 34–36
other risk, 25–26
proposed strategic risk management system, 36–38
SDMC, 37
sources of, 29
strategy vs. strategic management, 26–27
Strategic Risk Register, 37
Strategy, 26–27, 34
development, 33–34, 37
maps, 32
Strengths, weaknesses, opportunities and threats analysis (SWOT analysis), 25–26, 30
Stress testing, 86, 103
Structural hedging, 158–162
current accounts, 162–163
example, 158–159, 162–163
Structural interest-rate risk hedging
duration caps on NMDs, 191
lessons from failure of SVB, 190–191
materiality of structural IRR, 182–184
performance of NMD investment book, 185–188
practical implications, 191–192
stable and core balances, 190–191
suspending re-investment, 188–190
theory of cyclical smoothing, 184–185
Supervisory Principles, 114–121
SupTech, 96
Sustainability, 67
nurturing, 82
Sustainable banking
bank strategy and communication, 80–81
governing principles, stability and regulation, 79–80
nurturing sustainability and not panicking, 82
recent examples of bank failures include SVB and CS, 80
Sustainable bonds, 65
Sustainable finance, 71–72
Sustainable/sustainability, 56–57
Swap position management, 175
Swaptions, 159
Swiss National Bank, The, 94
Target operating model in treasury, 153–156
Term funding, 45
Theory of cyclical smoothing, 184–185
Timing of delivery, 205
Top-down processes, 69–70
Total return swaps (TRS), 127
Trade-offs, 27–28
Transition risks, 57, 101
Treasury, 159–160
architecture, 147–149
cash flow engine, 153
dataset, 153
modelling team, 155–156
risk, 149
standpoint, 164
target operating model in, 153–156
Treat customers fairly, 84
Trust, 86
Underhedging, 175
Unemployment rates, 45
Union Bank of Switzerland (UBS), 19
United Nation (UN), 51–52
United States’ generally accepted accounting practices (US-GAAP), 124
US Federal Reserve, 92
US Regional banks, 92–93
US Securities and Exchange Commission (SEC), 126
lawsuit, 127–129
Value at Risk (VaR), 35
Variation margin, 125
Viacom CBS, 129–130
Volcker Rule, 87
Volume-Weighted-Average Price (VWAP), 130–131, 141
Working together, 86
World Economic Forum, 54
Key performance indicators (KPIs)
, 27, 69–70
Key risk indicators (KRIs)
, 36–37, 69–70
Know your customer (KYC)
, 7, 91
Knowing the customer
, 82–85
Legacy process architecture
, 147–150
based in Silos
, 148
calculations
, 149–150
data
, 149
modelling/scenarios
, 149
process
, 149
reporting
, 150
Leverage ratio
, 96
Liability chain
, 136–137
Liability Driven Investment (LDI)
, 91
Liability management programme
, 71
Liability risks
, 101
LIBOR
, 89
Liquid cash ratio
, 17–18
Liquidation of hedge positions
, 129–132
Viacom CBS share price and trading volume
, 130
Liquidity challenges
, 169
for energy firms
, 135–136
Liquidity Coverage Ratio (LCR)
, 15
Liquidity risks
, 25–26, 111
management
, 6
Liquidity Transfer Pricing (LTP)
, 149
Loan-to-value (LTV)
, 43–44
ratios
, 174
Loans
, 166
defaults
, 46
origination process
, 166
prepayments
, 169
London Institute of Banking and Finance, The (LIBF)
, 25–26
Long-term horizon
, 101–103
Losses
, 132–134
Low interest rates
, 42–44
Lower/net zero carbon economy
, 56
Lowest net basis
, 199–200
Machine learning, 7–9, 95
Macroeconomic conditions, 47
Macroeconomic forces, 47–48
Macroeconomic theory, 175
of prepayments, 173
Macroeconomics, 173
‘March 2020 Episode’, The, 89
Margin calls, collapse triggered by, 128
Margin compression, 157
Margin shortfalls, 136
Market adaptation, 44–45
Market anomalies, 86
Market direction, flat curve and impact of, 201–203
Market manipulations
incentives for, 127–128
sensitivity of total return swap variation margin cash flows, 128
Market risk, 25–26
Market shocks, 111
Materiality of structural IRR, 182–184
Mis-selling activity, 84
Mixed methods, 35
Mobile banking, 152
Modelling prepayments, 169
Modified duration, 202
Monetary policy, 44
Money printing. See Quantitative easing
Mortgage prepayment analysis, 169
Mortgage product lifecycle, 175
Mortgage term assessment, 172
Moving average (MA), 181
Nasdaq OMX, 136
Nationally Determined Contributions (NDCs), 66
Net asset value (NAV), 126
Net basis, 196
calculation, 199–200
pricing theory, 204–206
seller’s options, 204–205
valuation, 199–200
value, 205–206
Net interest margin (NIM), 7, 149, 183
Neutral interest rate, 48
Non-Financial Bank Intermediaries (NBFIs), 90–91
Non-financial entities (NFE), 124–125, 135
Non-maturing deposits (NMDs), 47–48, 181
duration caps on, 191
hedging, 184, 192
modelling, 163
performance of NMD investment book, 185–188
Non-participation, monitoring and managing risks of, 111
Non-systemic banking institutions, 13
Office of Strategic Management (OSM), 37
Office of the Comptroller of the Currency (OCC), 100
Open banking, 8
Operational risk, 25–26
Organisational strategy, 26
Other Comprehensive Income (OCI), 187
Over-the-counter (OTC), 124–125
Overhedging, 175
Oversight committees, 31
Performance measurement, 7
Personal Protection Insurance (PPI), 84
Physical risks, 57, 101
‘Pillar 2 liquidity’ guidance from regulatory authority (PRA), 15
Pipeline hedging, 157–158
Pipeline risk, 158–162
Political, economic, social, technological, legal and environmental (PESTLE), 30
Portfolio management, 32
Positive carry bonds, 196
Post-pandemic inflation, 92
Potential future exposure (PFE), 139–140
Potential risk of loss, 85
Power futures, 138
Predicting Customer Behaviour, 173
Predictive analytics, 8–9
Prepayment assumptions, 175–176
Prepayment event, 164
Prepayment hedging, 164–166
Prepayment methodology, 171
Prepayment phenomenon, 164
Prepayment risk exposure, 164
Preserving integrity, 86
Price value of 01 (PV01), 202
Probability of default (PD), 85, 139–140
Process improvement, 33
Profitability measurement, 7
Project management, 32–33
Project Portfolio management, 33–34
Proportionality in prepayments, 175
Prudential Regulatory Authority (PRA), 69
Qualitative judgement, 34
Quality of delivery, 205
Quantitative easing, 42, 44, 173–174
Quantitative tightening, 44–46
Rate differential, 175
Rate incentive approach, 169–170, 172, 175
alternative theories of customer prepayments, 173–174
background, 171–172
ERCs, 174–175
retrospective testing, 172–173
Re-investment process, 186, 188–190
Realistic projections, 176
Recency bias, 41
Refinancing rate, 171
RegTech, 96
Regulation, 79–80
Regulatory and industry body developments
monitoring, 107
selective regulatory and industry body publications, 107–110
Regulatory bodies, 98
Regulatory concepts of stable and core NMDs, 182
Regulatory policy, 57
Relative value analysis, 203
Replacement cost (RC), 139–140
Replacement value, 124
Reporting process, 156
Repurchase agreement (“Repo”), 196
market, 204
transaction, 196, 204
Reputation, 79
Resilient banks, competitive priorities for, 12
Retrospective analysis, 172, 188, 190
Retrospective testing, 172–173
Return on assets (ROA), 7, 27
Return on capital (ROC), 27–28
Return on equity (ROE), 7, 27, 183
Return on invest (ROI), 34–35
Reverse repo, 196–197
Riding the yield curve strategy, 157
Ring-fencing, 80
Risk, 25–26
appetite, 43–44, 85–86
for banks as clearers, 137–138
complex liability chains, 136–137
culture, 18, 21, 80
in energy crisis, 134–138
huge margin shortfalls, 136
issues, 83
landscape for banks, 5
liquidity challenges for energy firms, 135–136
migration, 86
mitigation, 68
of non-participation, monitoring and managing, 111
register, 34
spike in energy prices, 134–135
Risk coverage, 101
risk types and associated climate-related risk drivers, 102
Risk management, 5, 7, 85–86
ALM, 6
building robust risk management frameworks and balance sheet management, 5–7
capital adequacy and capital allocation, 6
credit risk management, 6–7
evolving risk landscape for banks, 5
liquidity risk management, 6
principles, 18
profitability and performance measurement, 7
strengthening cybersecurity and compliance, 7
Risk management frameworks (RMF), 6, 68
Risk-weighted Assets (RWA), 139–140
for clearing exposures with clients, 141–144
potential future exposure, RWA and Basel III total capital requirement, 143
Risk–Adjusted Return on Capital methods (RAROC methods), 6, 34–35
Robotic process automation (RPA), 4
Safeguarding stability in uncertain times, 5–7
Savings products, 174
Savings ratio, 46–48
Scenario analyses, 103
Scenario planning, 31
Scenario testing, 86
Scorecards, 32
Seasonality in lending, 174
Senate Banking Committee, 93
Shadow banking, 90, 111
Signature Bank, 13, 93
Silicon Valley Bank (SVB), 13, 16, 92, 182
lessons from failure of, 190–191
recent examples of bank failures include, 80
Simulation, 132–134
Social justice, 51–52
Social media risk, 18
Solid governance model, 71
Stable balances, 190–191
Stablecoins, 111
Stamp duty holiday, 170, 173
Standard Initial Margin Model (SIMM), 125
Standardized Approach for CCR (SA-CCR), 138–140
Stepped fees, 174–175
Strategic choices, 27
Strategic Direction and Monitoring Committee (SDMC), 37
Strategic execution and monitoring, 33
Strategic learning, 33–34
Strategic management, 26–27
Strategic partnerships, 9
benefits of strategic partnerships in banking, 9
establishing effective partnership strategies, 9
Strategic planning, 32
Strategic risk, 25–26
Strategic risk management, 36
bank strategy, 27–28, 30–31
in banking, 28–29
cycle, 31–34
embedding strategic risk management in banks, 37–38
modelling, 34–36
other risk, 25–26
proposed strategic risk management system, 36–38
SDMC, 37
sources of, 29
strategy vs. strategic management, 26–27
Strategic Risk Register, 37
Strategy, 26–27, 34
development, 33–34, 37
maps, 32
Strengths, weaknesses, opportunities and threats analysis (SWOT analysis), 25–26, 30
Stress testing, 86, 103
Structural hedging, 158–162
current accounts, 162–163
example, 158–159, 162–163
Structural interest-rate risk hedging
duration caps on NMDs, 191
lessons from failure of SVB, 190–191
materiality of structural IRR, 182–184
performance of NMD investment book, 185–188
practical implications, 191–192
stable and core balances, 190–191
suspending re-investment, 188–190
theory of cyclical smoothing, 184–185
Supervisory Principles, 114–121
SupTech, 96
Sustainability, 67
nurturing, 82
Sustainable banking
bank strategy and communication, 80–81
governing principles, stability and regulation, 79–80
nurturing sustainability and not panicking, 82
recent examples of bank failures include SVB and CS, 80
Sustainable bonds, 65
Sustainable finance, 71–72
Sustainable/sustainability, 56–57
Swap position management, 175
Swaptions, 159
Swiss National Bank, The, 94
Target operating model in treasury, 153–156
Term funding, 45
Theory of cyclical smoothing, 184–185
Timing of delivery, 205
Top-down processes, 69–70
Total return swaps (TRS), 127
Trade-offs, 27–28
Transition risks, 57, 101
Treasury, 159–160
architecture, 147–149
cash flow engine, 153
dataset, 153
modelling team, 155–156
risk, 149
standpoint, 164
target operating model in, 153–156
Treat customers fairly, 84
Trust, 86
Underhedging, 175
Unemployment rates, 45
Union Bank of Switzerland (UBS), 19
United Nation (UN), 51–52
United States’ generally accepted accounting practices (US-GAAP), 124
US Federal Reserve, 92
US Regional banks, 92–93
US Securities and Exchange Commission (SEC), 126
lawsuit, 127–129
Value at Risk (VaR), 35
Variation margin, 125
Viacom CBS, 129–130
Volcker Rule, 87
Volume-Weighted-Average Price (VWAP), 130–131, 141
Working together, 86
World Economic Forum, 54
Machine learning
, 7–9, 95
Macroeconomic conditions
, 47
Macroeconomic forces
, 47–48
Macroeconomic theory
, 175
of prepayments
, 173
Macroeconomics
, 173
‘March 2020 Episode’, The
, 89
Margin calls, collapse triggered by
, 128
Margin compression
, 157
Margin shortfalls
, 136
Market adaptation
, 44–45
Market anomalies
, 86
Market direction, flat curve and impact of
, 201–203
Market manipulations
incentives for
, 127–128
sensitivity of total return swap variation margin cash flows
, 128
Market risk
, 25–26
Market shocks
, 111
Materiality of structural IRR
, 182–184
Mis-selling activity
, 84
Mixed methods
, 35
Mobile banking
, 152
Modelling prepayments
, 169
Modified duration
, 202
Monetary policy
, 44
Money printing. See Quantitative easing
Mortgage prepayment analysis
, 169
Mortgage product lifecycle
, 175
Mortgage term assessment
, 172
Moving average (MA)
, 181
Nasdaq OMX
, 136
Nationally Determined Contributions (NDCs)
, 66
Net asset value (NAV)
, 126
Net basis
, 196
calculation
, 199–200
pricing theory
, 204–206
seller’s options
, 204–205
valuation
, 199–200
value
, 205–206
Net interest margin (NIM)
, 7, 149, 183
Neutral interest rate
, 48
Non-Financial Bank Intermediaries (NBFIs)
, 90–91
Non-financial entities (NFE)
, 124–125, 135
Non-maturing deposits (NMDs)
, 47–48, 181
duration caps on
, 191
hedging
, 184, 192
modelling
, 163
performance of NMD investment book
, 185–188
Non-participation, monitoring and managing risks of
, 111
Non-systemic banking institutions
, 13
Office of Strategic Management (OSM), 37
Office of the Comptroller of the Currency (OCC), 100
Open banking, 8
Operational risk, 25–26
Organisational strategy, 26
Other Comprehensive Income (OCI), 187
Over-the-counter (OTC), 124–125
Overhedging, 175
Oversight committees, 31
Performance measurement, 7
Personal Protection Insurance (PPI), 84
Physical risks, 57, 101
‘Pillar 2 liquidity’ guidance from regulatory authority (PRA), 15
Pipeline hedging, 157–158
Pipeline risk, 158–162
Political, economic, social, technological, legal and environmental (PESTLE), 30
Portfolio management, 32
Positive carry bonds, 196
Post-pandemic inflation, 92
Potential future exposure (PFE), 139–140
Potential risk of loss, 85
Power futures, 138
Predicting Customer Behaviour, 173
Predictive analytics, 8–9
Prepayment assumptions, 175–176
Prepayment event, 164
Prepayment hedging, 164–166
Prepayment methodology, 171
Prepayment phenomenon, 164
Prepayment risk exposure, 164
Preserving integrity, 86
Price value of 01 (PV01), 202
Probability of default (PD), 85, 139–140
Process improvement, 33
Profitability measurement, 7
Project management, 32–33
Project Portfolio management, 33–34
Proportionality in prepayments, 175
Prudential Regulatory Authority (PRA), 69
Qualitative judgement, 34
Quality of delivery, 205
Quantitative easing, 42, 44, 173–174
Quantitative tightening, 44–46
Rate differential, 175
Rate incentive approach, 169–170, 172, 175
alternative theories of customer prepayments, 173–174
background, 171–172
ERCs, 174–175
retrospective testing, 172–173
Re-investment process, 186, 188–190
Realistic projections, 176
Recency bias, 41
Refinancing rate, 171
RegTech, 96
Regulation, 79–80
Regulatory and industry body developments
monitoring, 107
selective regulatory and industry body publications, 107–110
Regulatory bodies, 98
Regulatory concepts of stable and core NMDs, 182
Regulatory policy, 57
Relative value analysis, 203
Replacement cost (RC), 139–140
Replacement value, 124
Reporting process, 156
Repurchase agreement (“Repo”), 196
market, 204
transaction, 196, 204
Reputation, 79
Resilient banks, competitive priorities for, 12
Retrospective analysis, 172, 188, 190
Retrospective testing, 172–173
Return on assets (ROA), 7, 27
Return on capital (ROC), 27–28
Return on equity (ROE), 7, 27, 183
Return on invest (ROI), 34–35
Reverse repo, 196–197
Riding the yield curve strategy, 157
Ring-fencing, 80
Risk, 25–26
appetite, 43–44, 85–86
for banks as clearers, 137–138
complex liability chains, 136–137
culture, 18, 21, 80
in energy crisis, 134–138
huge margin shortfalls, 136
issues, 83
landscape for banks, 5
liquidity challenges for energy firms, 135–136
migration, 86
mitigation, 68
of non-participation, monitoring and managing, 111
register, 34
spike in energy prices, 134–135
Risk coverage, 101
risk types and associated climate-related risk drivers, 102
Risk management, 5, 7, 85–86
ALM, 6
building robust risk management frameworks and balance sheet management, 5–7
capital adequacy and capital allocation, 6
credit risk management, 6–7
evolving risk landscape for banks, 5
liquidity risk management, 6
principles, 18
profitability and performance measurement, 7
strengthening cybersecurity and compliance, 7
Risk management frameworks (RMF), 6, 68
Risk-weighted Assets (RWA), 139–140
for clearing exposures with clients, 141–144
potential future exposure, RWA and Basel III total capital requirement, 143
Risk–Adjusted Return on Capital methods (RAROC methods), 6, 34–35
Robotic process automation (RPA), 4
Safeguarding stability in uncertain times, 5–7
Savings products, 174
Savings ratio, 46–48
Scenario analyses, 103
Scenario planning, 31
Scenario testing, 86
Scorecards, 32
Seasonality in lending, 174
Senate Banking Committee, 93
Shadow banking, 90, 111
Signature Bank, 13, 93
Silicon Valley Bank (SVB), 13, 16, 92, 182
lessons from failure of, 190–191
recent examples of bank failures include, 80
Simulation, 132–134
Social justice, 51–52
Social media risk, 18
Solid governance model, 71
Stable balances, 190–191
Stablecoins, 111
Stamp duty holiday, 170, 173
Standard Initial Margin Model (SIMM), 125
Standardized Approach for CCR (SA-CCR), 138–140
Stepped fees, 174–175
Strategic choices, 27
Strategic Direction and Monitoring Committee (SDMC), 37
Strategic execution and monitoring, 33
Strategic learning, 33–34
Strategic management, 26–27
Strategic partnerships, 9
benefits of strategic partnerships in banking, 9
establishing effective partnership strategies, 9
Strategic planning, 32
Strategic risk, 25–26
Strategic risk management, 36
bank strategy, 27–28, 30–31
in banking, 28–29
cycle, 31–34
embedding strategic risk management in banks, 37–38
modelling, 34–36
other risk, 25–26
proposed strategic risk management system, 36–38
SDMC, 37
sources of, 29
strategy vs. strategic management, 26–27
Strategic Risk Register, 37
Strategy, 26–27, 34
development, 33–34, 37
maps, 32
Strengths, weaknesses, opportunities and threats analysis (SWOT analysis), 25–26, 30
Stress testing, 86, 103
Structural hedging, 158–162
current accounts, 162–163
example, 158–159, 162–163
Structural interest-rate risk hedging
duration caps on NMDs, 191
lessons from failure of SVB, 190–191
materiality of structural IRR, 182–184
performance of NMD investment book, 185–188
practical implications, 191–192
stable and core balances, 190–191
suspending re-investment, 188–190
theory of cyclical smoothing, 184–185
Supervisory Principles, 114–121
SupTech, 96
Sustainability, 67
nurturing, 82
Sustainable banking
bank strategy and communication, 80–81
governing principles, stability and regulation, 79–80
nurturing sustainability and not panicking, 82
recent examples of bank failures include SVB and CS, 80
Sustainable bonds, 65
Sustainable finance, 71–72
Sustainable/sustainability, 56–57
Swap position management, 175
Swaptions, 159
Swiss National Bank, The, 94
Target operating model in treasury, 153–156
Term funding, 45
Theory of cyclical smoothing, 184–185
Timing of delivery, 205
Top-down processes, 69–70
Total return swaps (TRS), 127
Trade-offs, 27–28
Transition risks, 57, 101
Treasury, 159–160
architecture, 147–149
cash flow engine, 153
dataset, 153
modelling team, 155–156
risk, 149
standpoint, 164
target operating model in, 153–156
Treat customers fairly, 84
Trust, 86
Underhedging, 175
Unemployment rates, 45
Union Bank of Switzerland (UBS), 19
United Nation (UN), 51–52
United States’ generally accepted accounting practices (US-GAAP), 124
US Federal Reserve, 92
US Regional banks, 92–93
US Securities and Exchange Commission (SEC), 126
lawsuit, 127–129
Value at Risk (VaR), 35
Variation margin, 125
Viacom CBS, 129–130
Volcker Rule, 87
Volume-Weighted-Average Price (VWAP), 130–131, 141
Working together, 86
World Economic Forum, 54
Office of Strategic Management (OSM)
, 37
Office of the Comptroller of the Currency (OCC)
, 100
Open banking
, 8
Operational risk
, 25–26
Organisational strategy
, 26
Other Comprehensive Income (OCI)
, 187
Over-the-counter (OTC)
, 124–125
Overhedging
, 175
Oversight committees
, 31
Performance measurement
, 7
Personal Protection Insurance (PPI)
, 84
Physical risks
, 57, 101
‘Pillar 2 liquidity’ guidance from regulatory authority (PRA)
, 15
Pipeline hedging
, 157–158
Pipeline risk
, 158–162
Political, economic, social, technological, legal and environmental (PESTLE)
, 30
Portfolio management
, 32
Positive carry bonds
, 196
Post-pandemic inflation
, 92
Potential future exposure (PFE)
, 139–140
Potential risk of loss
, 85
Power futures
, 138
Predicting Customer Behaviour
, 173
Predictive analytics
, 8–9
Prepayment assumptions
, 175–176
Prepayment event
, 164
Prepayment hedging
, 164–166
Prepayment methodology
, 171
Prepayment phenomenon
, 164
Prepayment risk exposure
, 164
Preserving integrity
, 86
Price value of 01 (PV01)
, 202
Probability of default (PD)
, 85, 139–140
Process improvement
, 33
Profitability measurement
, 7
Project management
, 32–33
Project Portfolio management
, 33–34
Proportionality in prepayments
, 175
Prudential Regulatory Authority (PRA)
, 69
Qualitative judgement, 34
Quality of delivery, 205
Quantitative easing, 42, 44, 173–174
Quantitative tightening, 44–46
Rate differential, 175
Rate incentive approach, 169–170, 172, 175
alternative theories of customer prepayments, 173–174
background, 171–172
ERCs, 174–175
retrospective testing, 172–173
Re-investment process, 186, 188–190
Realistic projections, 176
Recency bias, 41
Refinancing rate, 171
RegTech, 96
Regulation, 79–80
Regulatory and industry body developments
monitoring, 107
selective regulatory and industry body publications, 107–110
Regulatory bodies, 98
Regulatory concepts of stable and core NMDs, 182
Regulatory policy, 57
Relative value analysis, 203
Replacement cost (RC), 139–140
Replacement value, 124
Reporting process, 156
Repurchase agreement (“Repo”), 196
market, 204
transaction, 196, 204
Reputation, 79
Resilient banks, competitive priorities for, 12
Retrospective analysis, 172, 188, 190
Retrospective testing, 172–173
Return on assets (ROA), 7, 27
Return on capital (ROC), 27–28
Return on equity (ROE), 7, 27, 183
Return on invest (ROI), 34–35
Reverse repo, 196–197
Riding the yield curve strategy, 157
Ring-fencing, 80
Risk, 25–26
appetite, 43–44, 85–86
for banks as clearers, 137–138
complex liability chains, 136–137
culture, 18, 21, 80
in energy crisis, 134–138
huge margin shortfalls, 136
issues, 83
landscape for banks, 5
liquidity challenges for energy firms, 135–136
migration, 86
mitigation, 68
of non-participation, monitoring and managing, 111
register, 34
spike in energy prices, 134–135
Risk coverage, 101
risk types and associated climate-related risk drivers, 102
Risk management, 5, 7, 85–86
ALM, 6
building robust risk management frameworks and balance sheet management, 5–7
capital adequacy and capital allocation, 6
credit risk management, 6–7
evolving risk landscape for banks, 5
liquidity risk management, 6
principles, 18
profitability and performance measurement, 7
strengthening cybersecurity and compliance, 7
Risk management frameworks (RMF), 6, 68
Risk-weighted Assets (RWA), 139–140
for clearing exposures with clients, 141–144
potential future exposure, RWA and Basel III total capital requirement, 143
Risk–Adjusted Return on Capital methods (RAROC methods), 6, 34–35
Robotic process automation (RPA), 4
Safeguarding stability in uncertain times, 5–7
Savings products, 174
Savings ratio, 46–48
Scenario analyses, 103
Scenario planning, 31
Scenario testing, 86
Scorecards, 32
Seasonality in lending, 174
Senate Banking Committee, 93
Shadow banking, 90, 111
Signature Bank, 13, 93
Silicon Valley Bank (SVB), 13, 16, 92, 182
lessons from failure of, 190–191
recent examples of bank failures include, 80
Simulation, 132–134
Social justice, 51–52
Social media risk, 18
Solid governance model, 71
Stable balances, 190–191
Stablecoins, 111
Stamp duty holiday, 170, 173
Standard Initial Margin Model (SIMM), 125
Standardized Approach for CCR (SA-CCR), 138–140
Stepped fees, 174–175
Strategic choices, 27
Strategic Direction and Monitoring Committee (SDMC), 37
Strategic execution and monitoring, 33
Strategic learning, 33–34
Strategic management, 26–27
Strategic partnerships, 9
benefits of strategic partnerships in banking, 9
establishing effective partnership strategies, 9
Strategic planning, 32
Strategic risk, 25–26
Strategic risk management, 36
bank strategy, 27–28, 30–31
in banking, 28–29
cycle, 31–34
embedding strategic risk management in banks, 37–38
modelling, 34–36
other risk, 25–26
proposed strategic risk management system, 36–38
SDMC, 37
sources of, 29
strategy vs. strategic management, 26–27
Strategic Risk Register, 37
Strategy, 26–27, 34
development, 33–34, 37
maps, 32
Strengths, weaknesses, opportunities and threats analysis (SWOT analysis), 25–26, 30
Stress testing, 86, 103
Structural hedging, 158–162
current accounts, 162–163
example, 158–159, 162–163
Structural interest-rate risk hedging
duration caps on NMDs, 191
lessons from failure of SVB, 190–191
materiality of structural IRR, 182–184
performance of NMD investment book, 185–188
practical implications, 191–192
stable and core balances, 190–191
suspending re-investment, 188–190
theory of cyclical smoothing, 184–185
Supervisory Principles, 114–121
SupTech, 96
Sustainability, 67
nurturing, 82
Sustainable banking
bank strategy and communication, 80–81
governing principles, stability and regulation, 79–80
nurturing sustainability and not panicking, 82
recent examples of bank failures include SVB and CS, 80
Sustainable bonds, 65
Sustainable finance, 71–72
Sustainable/sustainability, 56–57
Swap position management, 175
Swaptions, 159
Swiss National Bank, The, 94
Target operating model in treasury, 153–156
Term funding, 45
Theory of cyclical smoothing, 184–185
Timing of delivery, 205
Top-down processes, 69–70
Total return swaps (TRS), 127
Trade-offs, 27–28
Transition risks, 57, 101
Treasury, 159–160
architecture, 147–149
cash flow engine, 153
dataset, 153
modelling team, 155–156
risk, 149
standpoint, 164
target operating model in, 153–156
Treat customers fairly, 84
Trust, 86
Underhedging, 175
Unemployment rates, 45
Union Bank of Switzerland (UBS), 19
United Nation (UN), 51–52
United States’ generally accepted accounting practices (US-GAAP), 124
US Federal Reserve, 92
US Regional banks, 92–93
US Securities and Exchange Commission (SEC), 126
lawsuit, 127–129
Value at Risk (VaR), 35
Variation margin, 125
Viacom CBS, 129–130
Volcker Rule, 87
Volume-Weighted-Average Price (VWAP), 130–131, 141
Working together, 86
World Economic Forum, 54
Qualitative judgement
, 34
Quality of delivery
, 205
Quantitative easing
, 42, 44, 173–174
Quantitative tightening
, 44–46
Rate differential
, 175
Rate incentive approach
, 169–170, 172, 175
alternative theories of customer prepayments
, 173–174
background
, 171–172
ERCs
, 174–175
retrospective testing
, 172–173
Re-investment process
, 186, 188–190
Realistic projections
, 176
Recency bias
, 41
Refinancing rate
, 171
RegTech
, 96
Regulation
, 79–80
Regulatory and industry body developments
monitoring
, 107
selective regulatory and industry body publications
, 107–110
Regulatory bodies
, 98
Regulatory concepts of stable and core NMDs
, 182
Regulatory policy
, 57
Relative value analysis
, 203
Replacement cost (RC)
, 139–140
Replacement value
, 124
Reporting process
, 156
Repurchase agreement (“Repo”)
, 196
market
, 204
transaction
, 196, 204
Reputation
, 79
Resilient banks, competitive priorities for
, 12
Retrospective analysis
, 172, 188, 190
Retrospective testing
, 172–173
Return on assets (ROA)
, 7, 27
Return on capital (ROC)
, 27–28
Return on equity (ROE)
, 7, 27, 183
Return on invest (ROI)
, 34–35
Reverse repo
, 196–197
Riding the yield curve strategy
, 157
Ring-fencing
, 80
Risk
, 25–26
appetite
, 43–44, 85–86
for banks as clearers
, 137–138
complex liability chains
, 136–137
culture
, 18, 21, 80
in energy crisis
, 134–138
huge margin shortfalls
, 136
issues
, 83
landscape for banks
, 5
liquidity challenges for energy firms
, 135–136
migration
, 86
mitigation
, 68
of non-participation, monitoring and managing
, 111
register
, 34
spike in energy prices
, 134–135
Risk coverage
, 101
risk types and associated climate-related risk drivers
, 102
Risk management
, 5, 7, 85–86
ALM
, 6
building robust risk management frameworks and balance sheet management
, 5–7
capital adequacy and capital allocation
, 6
credit risk management
, 6–7
evolving risk landscape for banks
, 5
liquidity risk management
, 6
principles
, 18
profitability and performance measurement
, 7
strengthening cybersecurity and compliance
, 7
Risk management frameworks (RMF)
, 6, 68
Risk-weighted Assets (RWA)
, 139–140
for clearing exposures with clients
, 141–144
potential future exposure, RWA and Basel III total capital requirement
, 143
Risk–Adjusted Return on Capital methods (RAROC methods)
, 6, 34–35
Robotic process automation (RPA)
, 4
Safeguarding stability in uncertain times, 5–7
Savings products, 174
Savings ratio, 46–48
Scenario analyses, 103
Scenario planning, 31
Scenario testing, 86
Scorecards, 32
Seasonality in lending, 174
Senate Banking Committee, 93
Shadow banking, 90, 111
Signature Bank, 13, 93
Silicon Valley Bank (SVB), 13, 16, 92, 182
lessons from failure of, 190–191
recent examples of bank failures include, 80
Simulation, 132–134
Social justice, 51–52
Social media risk, 18
Solid governance model, 71
Stable balances, 190–191
Stablecoins, 111
Stamp duty holiday, 170, 173
Standard Initial Margin Model (SIMM), 125
Standardized Approach for CCR (SA-CCR), 138–140
Stepped fees, 174–175
Strategic choices, 27
Strategic Direction and Monitoring Committee (SDMC), 37
Strategic execution and monitoring, 33
Strategic learning, 33–34
Strategic management, 26–27
Strategic partnerships, 9
benefits of strategic partnerships in banking, 9
establishing effective partnership strategies, 9
Strategic planning, 32
Strategic risk, 25–26
Strategic risk management, 36
bank strategy, 27–28, 30–31
in banking, 28–29
cycle, 31–34
embedding strategic risk management in banks, 37–38
modelling, 34–36
other risk, 25–26
proposed strategic risk management system, 36–38
SDMC, 37
sources of, 29
strategy vs. strategic management, 26–27
Strategic Risk Register, 37
Strategy, 26–27, 34
development, 33–34, 37
maps, 32
Strengths, weaknesses, opportunities and threats analysis (SWOT analysis), 25–26, 30
Stress testing, 86, 103
Structural hedging, 158–162
current accounts, 162–163
example, 158–159, 162–163
Structural interest-rate risk hedging
duration caps on NMDs, 191
lessons from failure of SVB, 190–191
materiality of structural IRR, 182–184
performance of NMD investment book, 185–188
practical implications, 191–192
stable and core balances, 190–191
suspending re-investment, 188–190
theory of cyclical smoothing, 184–185
Supervisory Principles, 114–121
SupTech, 96
Sustainability, 67
nurturing, 82
Sustainable banking
bank strategy and communication, 80–81
governing principles, stability and regulation, 79–80
nurturing sustainability and not panicking, 82
recent examples of bank failures include SVB and CS, 80
Sustainable bonds, 65
Sustainable finance, 71–72
Sustainable/sustainability, 56–57
Swap position management, 175
Swaptions, 159
Swiss National Bank, The, 94
Target operating model in treasury, 153–156
Term funding, 45
Theory of cyclical smoothing, 184–185
Timing of delivery, 205
Top-down processes, 69–70
Total return swaps (TRS), 127
Trade-offs, 27–28
Transition risks, 57, 101
Treasury, 159–160
architecture, 147–149
cash flow engine, 153
dataset, 153
modelling team, 155–156
risk, 149
standpoint, 164
target operating model in, 153–156
Treat customers fairly, 84
Trust, 86
Underhedging, 175
Unemployment rates, 45
Union Bank of Switzerland (UBS), 19
United Nation (UN), 51–52
United States’ generally accepted accounting practices (US-GAAP), 124
US Federal Reserve, 92
US Regional banks, 92–93
US Securities and Exchange Commission (SEC), 126
lawsuit, 127–129
Value at Risk (VaR), 35
Variation margin, 125
Viacom CBS, 129–130
Volcker Rule, 87
Volume-Weighted-Average Price (VWAP), 130–131, 141
Working together, 86
World Economic Forum, 54
Safeguarding stability in uncertain times
, 5–7
Savings products
, 174
Savings ratio
, 46–48
Scenario analyses
, 103
Scenario planning
, 31
Scenario testing
, 86
Scorecards
, 32
Seasonality in lending
, 174
Senate Banking Committee
, 93
Shadow banking
, 90, 111
Signature Bank
, 13, 93
Silicon Valley Bank (SVB)
, 13, 16, 92, 182
lessons from failure of
, 190–191
recent examples of bank failures include
, 80
Simulation
, 132–134
Social justice
, 51–52
Social media risk
, 18
Solid governance model
, 71
Stable balances
, 190–191
Stablecoins
, 111
Stamp duty holiday
, 170, 173
Standard Initial Margin Model (SIMM)
, 125
Standardized Approach for CCR (SA-CCR)
, 138–140
Stepped fees
, 174–175
Strategic choices
, 27
Strategic Direction and Monitoring Committee (SDMC)
, 37
Strategic execution and monitoring
, 33
Strategic learning
, 33–34
Strategic management
, 26–27
Strategic partnerships
, 9
benefits of strategic partnerships in banking
, 9
establishing effective partnership strategies
, 9
Strategic planning
, 32
Strategic risk
, 25–26
Strategic risk management
, 36
bank strategy
, 27–28, 30–31
in banking
, 28–29
cycle
, 31–34
embedding strategic risk management in banks
, 37–38
modelling
, 34–36
other risk
, 25–26
proposed strategic risk management system
, 36–38
SDMC
, 37
sources of
, 29
strategy vs. strategic management
, 26–27
Strategic Risk Register
, 37
Strategy
, 26–27, 34
development
, 33–34, 37
maps
, 32
Strengths, weaknesses, opportunities and threats analysis (SWOT analysis)
, 25–26, 30
Stress testing
, 86, 103
Structural hedging
, 158–162
current accounts
, 162–163
example
, 158–159, 162–163
Structural interest-rate risk hedging
duration caps on NMDs
, 191
lessons from failure of SVB
, 190–191
materiality of structural IRR
, 182–184
performance of NMD investment book
, 185–188
practical implications
, 191–192
stable and core balances
, 190–191
suspending re-investment
, 188–190
theory of cyclical smoothing
, 184–185
Supervisory Principles
, 114–121
SupTech
, 96
Sustainability
, 67
nurturing
, 82
Sustainable banking
bank strategy and communication
, 80–81
governing principles, stability and regulation
, 79–80
nurturing sustainability and not panicking
, 82
recent examples of bank failures include SVB and CS
, 80
Sustainable bonds
, 65
Sustainable finance
, 71–72
Sustainable/sustainability
, 56–57
Swap position management
, 175
Swaptions
, 159
Swiss National Bank, The
, 94
Target operating model in treasury
, 153–156
Term funding
, 45
Theory of cyclical smoothing
, 184–185
Timing of delivery
, 205
Top-down processes
, 69–70
Total return swaps (TRS)
, 127
Trade-offs
, 27–28
Transition risks
, 57, 101
Treasury
, 159–160
architecture
, 147–149
cash flow engine
, 153
dataset
, 153
modelling team
, 155–156
risk
, 149
standpoint
, 164
target operating model in
, 153–156
Treat customers fairly
, 84
Trust
, 86
Underhedging, 175
Unemployment rates, 45
Union Bank of Switzerland (UBS), 19
United Nation (UN), 51–52
United States’ generally accepted accounting practices (US-GAAP), 124
US Federal Reserve, 92
US Regional banks, 92–93
US Securities and Exchange Commission (SEC), 126
lawsuit, 127–129
Value at Risk (VaR), 35
Variation margin, 125
Viacom CBS, 129–130
Volcker Rule, 87
Volume-Weighted-Average Price (VWAP), 130–131, 141
Working together, 86
World Economic Forum, 54
Underhedging
, 175
Unemployment rates
, 45
Union Bank of Switzerland (UBS)
, 19
United Nation (UN)
, 51–52
United States’ generally accepted accounting practices (US-GAAP)
, 124
US Federal Reserve
, 92
US Regional banks
, 92–93
US Securities and Exchange Commission (SEC)
, 126
lawsuit
, 127–129
Value at Risk (VaR)
, 35
Variation margin
, 125
Viacom CBS
, 129–130
Volcker Rule
, 87
Volume-Weighted-Average Price (VWAP)
, 130–131, 141
Working together, 86
World Economic Forum, 54
Working together
, 86
World Economic Forum
, 54
- Prelims
- Part I Current and Future Challenges in Banking
- Chapter 1 The Changing Business Landscape: Competitive Priorities for Resilient Banks
- Chapter 2 Strategic Risk Management in Banking
- Chapter 3 Staying Ahead of the Curve: Macroeconomics and Balance Sheet Management
- Chapter 4 Climate Change and Social Justice: Challenges for Banks in the Regulatory Landscape and Competitive Environment
- Chapter 5 A Diversified Funding Profile for Banks: Including Green Bonds in the Liability Structure
- Part II Regulation and Risk Management
- Chapter 6 Back to Basics: The Future of Sustainable Banking
- Chapter 7 Bank Regulation: Where We've Been, and Where Are We Going?
- Chapter 8 Are We Heading Towards ‘Basel V’? Climate, Cryptos and Other Challenges for Banks
- Chapter 9 Counterparty Credit Risk: Lessons From Recent Events
- Part III Best Practice in Interest-Rate Risk Management
- Chapter 10 IRRBB: Moving From Regulatory Reporting to Balance Sheet Insights and Management Information
- Chapter 11 Hedging Strategies for Pipeline Hedging, Prepayment Hedging and Structural Hedging
- Chapter 12 Modelling Mortgage Prepayments in Uncertainty: The Rate Incentive Approach
- Chapter 13 The Future of Structural Interest-Rate Risk Hedging
- Part IV Trading and Relative Value Perspectives
- Chapter 14 The Gilt Futures Basis: Analysis and Trading
- Index