Accelerating legislative change has reset the roles of Treasury and Finance. Cloud-computing technologies and digital disruption are setting new benchmarks for the delivery of services. We understand the terrain that Finance, Treasury, and Risk teams must navigate as benchmarks are reset and expectations run high.
Treasury functions must ensure a sustainable supply of liquidity by proactively managing the balance sheet through unprecedented and uncertain times while playing a leading role in liquidity and interest rate stress testing. Finance functions are tasked with stability and solvency by ensuring available financial resources exceed capital requirements. Risk functions are expected to defend against a multitude of threats - financial and non-financial. Trying to navigate the minefield of current challenges is no easy task. Opportunities exist to improve calculations that support risk and capital results. Approximation-based calculations that cover liquidity, strategic and market risks expose credit unions and mid-sized banks to ‘unattended’ event risk and also force the regulators to apportion higher capital.
We provide advisory services to Finance, Treasury, and Risk functions at banks in the Americas, Africa, and the Middle East. We partner with executives to advance analytic capabilities by bringing to bear cutting-edge modelling techniques pioneered by BankingBook. Our solution helps stakeholders stay informed and make ‘stay-in-business’ and ‘strategic’ decisions based on reliable and accurate business intelligence. BBA's engagements are transformative and high impact. We focus on delivering cost-effective solutions by leveraging our domain expertise, microservices, acceleration tools, and intellectual capital. We maintain our leadership by delivering superior impact, know-how transfer, and on-going support.
ASSET/LIABILITY MANAGEMENT (ALM)
To ensure dependable and defendable Treasury analytics that meets the test of heightened regulatory and board scrutiny, we design and implement client-tailored methodologies to assist banks and credit unions with dynamic interest rate modelling, behavioral models for loan and deposit portfolios using our proprietary modelling techniques and develop bespoke analytics, and reporting. We help banks and credit unions implement these tools in balance sheet management models, funds transfer pricing frameworks, stress testing applications, ICAAP, and other areas.
CREDIT SCORING AND PORTFOLIO MANAGEMENT
Even more than a decade after the financial crisis, the classic boom-bust cyclicality of credit and capital markets remains intact. Some familiar risks are creeping back, and new ones have emerged. Some of the notable credit and capital market risks can be traced back to the procyclicality of credit and capital market models. Others include cross-border defaults, sectoral concentration, and dislocation of a structured credit market. Even more than a decade after the financial crisis, the classic boom-bust cyclicality of credit and capital markets remains intact. Some familiar risks are creeping back, and new ones have emerged. Some of the notable credit and capital market risks can be traced back to the procyclicality of credit and capital market models. Others include cross-border defaults, sectoral concentration, and dislocation of a structured credit market.
The BBA team specializes in applying best practice credit and capital markets modelling applications to improve the predictive power of a credit scoring system, manage cyclicality, and concentration risks for origination decision-makers and portfolio managers. Our advanced credit-risk analytics enables institutions to improve underwriting decisions and increase revenues while reducing risk costs. We work across all asset classes, credit risk models, and the entire credit life cycle, including profit maximization, portfolio management, collections, and loss mitigation.
Our work helps clients address five strategic imperatives: understanding and adapting to changing consumer behavior, mining the vast amounts of available data, expanding the credit “buy box” without altering risk profile or overall risk appetite, increasing penetration of the customer base, and containing credit risk within the portfolio.
We support clients in the complex tasks of managing and streamlining their balance sheets—enhancing profitability while taking into account conflicting objectives such as reducing capital and minimizing risk.
Driven by global regulatory reform of liquidity requirements, supervisors now demand an increased level of confidence in banks and credit unions’ ability to maintain adequate liquidity under normal circumstances and stress. The complexity of liquidity risk modelling is above the capabilities of most existing liquidity risk management tools and decades-old spreadsheet-based modelling constructs. Management teams, keen to invest in internal liquidity analytics, are finding most vended solutions are unable to address liquidity modelling challenges.
The BankingBook liquidity advisory solution provides unmatched flexibility in calculating and assigning a liquidity premium, basis risk, and other similar FTP add-ons on top of the base funds transfer price. We help clients adapt to the LCR/NSFR and use a proprietary toolbox to triangulate granular stressed liquidity assumptions from a combination of internal and external data (including proprietary BBA benchmarks). We gear our efforts toward forward-looking perspectives on balance sheet management. We support clients in analyzing and understanding characteristics of their balance sheet (for example, different types of deposits and mortgages with prepayment rights) both under normal circumstances and under stress. We perform liquidity risk modelling at an enterprise-wide level as well as for specific businesses.
RESPONDING TO RATE CHANGE
With volatility in base rates, we use sophisticated analytics to develop near term tactics to understand what trade-off exists between profit or liquidity maximization. Deposits have a different value across institutions, the BBA team helps transform challenges with rate volatility into a competitive advantage. Our team helps clients understand how rising rates impact retail banking growth, deposit coverage of loans, and betas at a granular level by facilitating an improved understanding of net margin and run-offs.
REVENUE AND PPNR MODELLING
Accurate forecasting of PPNR is a critical component of holistic risk management for a bank. Crude models don’t give sufficient detailed information to perform useful analysis. Sophisticated, granular models tend to be dominated by noise from poor quality data at the individual bank level. BBA team strikes a balance in the analysis by applying sophisticated revenue and PPNR modelling. Our expertise is best known in econometric revenue modelling. We continue to refine our approach as we work with large banks and credit unions in the Americas.
COMPREHENSIVE CAPITAL MANAGEMENT AND STRESS TESTING
A structured, well-defined stress-testing process connects the "engine room" to the boardroom; it goes beyond cumbersome exercises aimed solely at achieving regulatory compliance and moves board members and business leaders to action. Our stress-testing capabilities include scenario generation, translation of scenarios into environmental parameters through macroeconomic quantification, and assessment of the impact on the overall market as well as on a client's profit and loss and balance sheet—all of which can inform an action plan to mitigate risks and swiftly capture opportunities.
CREDIT UNIONS PERSPECTIVE
Each quarter, we review the public financials of leading Canadian credit unions, diagnosing the state of the credit union industry, and illustrating the leading practices and characteristics of industry winners. To receive a copy of our perspective, email us.
ScenarioFrontier is a powerful tool for day-to-day strategic planning and capital management, permitting companies to identify and quantify risks and opportunities across a wide range of potential economic environments. ScenarioFrontier integrates budget, risk, and macroeconomic variables for regulatory compliance and management action planning.
ECAPLeader provides an integrated view of capital for material risks, using a modelling engine attuned to the credit cycle, such that economic capital rises in good periods and starts to fall, relatively, in bad periods as losses get realized.
ModelTek is an industry-leading platform designed to industrialize model risk management for the second and third lines of defense. Regulators and auditors across the globe are consistently asking for more in-depth and more frequent model validation. The risk of non-compliance with regulatory standards, such as IFRS 9, SR 11-7, BCBS 350, and BCBS 223 is severe.