Tuff Risk conducts Asset Liability Management audits for banks and credit unions, where both the interest rate and liquidity risk practices of the financial institution are reviewed. Tuff Risk also offers personalized in-house classroom style ALM discovery sessions with internal finance staff to review ALM set-up, process and risk measures and, in the process, to transfer ALM knowledge.
A Specialized Audit
Asset liability management (ALM) is such specific area of finance that it is challenging for a typical auditing firm to genuinely understand the intricacies of ALM. Only a seasoned ALM practitioner is truly able to evaluate the details of data input and output, ALM modeling assumptions and risk measures and methodologies. With over twenty years of experience measuring and managing interest rate risk, Tuff Risk has the insight you need to ensure a thorough risk management audit.
Today’s sophisticated and assumption driven ALM software is not easy to audit, due to the myriad of internal settings, switches, and most ALM software’s black box style output. Complex financial formulas, intricate assumptions and statistically generated output require a high level of understanding.
Tuff Risk itself undergoes an audit every three years to ensure all is well within its own procedures. Tuff Risk engages the services of one of North America’s largest consulting firms to do so, providing real insight as to how others conduct ALM audits. Tuff Risk guarantees more than a surface review.
The Final Audit Report
Tuff Risk provides two documents upon the completion of after its audit, one addressing the needs of the Board, explaining the audit process, what was reviewed and the overall findings of the audit and the second, a much more detailed side-letter providing the Asset Liability Committee (ALCO) with Tuff Risk’s conclusions with respect to Treasury’s ALM modeling and risk measures. In addition, Tuff Risk provides ALCO recommendations designed to enhance Treasury’s current ALM processes and methodologies.
Classroom Style Discovery
Tuff Risk has on several occasions joined the finance team of banks and credit unions around a conference table with the organization’s ALM software model shown on a large TV Monitor. In this classroom setting Tuff Risk walks through each setting within the ALM software, reviewing both input and output of the model. A systematic step-by-step process allows your finance staff to ask questions as to best practices and methodologies.
Every aspect of the modeling procedure is questioned and discussed, giving the internal finance team an opportunity to verify model setup and assumptions. High on the list of review items is the treatment of demand deposits, prepayments, payouts, pricing of new business, duration, and risk measures such as Earnings-at-Risk and Economic Value-at-Risk.
This hands-on approach instills a deep sense of confidence in all those who participate and is a great learning environment for all. In the end, not only is the financial institution’s ALM model calibrated but all members of the finance team responsible for your institution’s interest rate risk management are knowledgeable in every aspect of the process.