Asset-liability management is very topical right now, because of the competitive banking market and prescriptive regulatory environment. Professor Moorad Choudhry will present a practitioner-led and practitioner-focused program to identify and apply best-practice.
“Banking is too important in the world for best practice to be kept in a narrow field of knowledge,” says Professor Choudhry. “Knowledge transfer is very important to me, and I believe banks need to do more on comparing notes about best practice. People who keep knowledge to themselves instead of disseminating ideas aren’t doing the industry a favor.”
This passionate belief in knowledge transfer is what draws Moorad to devote some of his time to training banking professionals. He has 30 years’ experience as a banker in the City of London, working in commercial, investment and retail banking. The focus of his current research is on bank asset-liability management (ALM) and bank risk and treasury operating models. It’s these subjects that Moorad will be focusing on in the three-day Bank Asset-Liability Management program he will be presenting at Amsterdam Institute of Finance in February 2020.
“My own personal work experience has, for a long time, been doing this work at the coalface in the treasury space at different banks,” he says. In recent years, he was in treasury at KBC Financial Products, in the UK arm of Arab Bank, and at The Royal Bank of Scotland.
The subject of ALM is very topical right now, says Moorad. “The big driver in this area is a very prescriptive regulatory environment – whether it’s implementing the guidance of the European Banking Authority, Basel Committee or your own national regulator. Being compliant with regulatory requirements is very onerous for every bank. Whether you’re the biggest bank in the world or the smallest, it takes a lot of time and a lot of very detailed knowledge, and is a major area of consideration for senior executives.”
There’s a second driver, says Moorad, which he refers to as “Strategic ALM” – applying a balance sheet optimization approach to compete within the banking sector and add value to the bank’s own shareholders. “We’re in a very competitive environment. There are new banks coming online all the time. Plus, there’s the additional cost of compliance with regulation to consider. In order to compete and succeed, you need to manage your balance sheet efficiently.”
Anyone working in this space will know of banks that have failed in this regard, and paid a high price for their failures. “Despite the regulatory framework, people get it wrong,” says Moorad. “There are plenty of examples in recent times – banks have been fined because they have got their capital calculations wrong, or their regulatory reporting has been inadequate. There have been cases of a bank receiving a higher capital add-on because their risk management framework was deemed to be inadequate by the regulator.”
Of course, the most extreme example of regulatory failure is the crash of 2008. Moorad was in treasury before and during the crash, so he has real-world experience of the good times and the bad, as well as the resulting changes to the industry and the regulatory environment. “However bad one thinks a crash is going to be, when there actually is a crash it’s going to be a lot worse than you imagined. That’s why I say one should always err on the side of conservatism. The regulations are onerous, but it is not just a matter what the regulator says is OK. When you stress-proof your balance sheet, don’t just comply, but be mindful of what you think is good for the bank.”
As well as his banking experience and his academic experience, Moorad has presented professional training courses in Europe, South East Asia, the Middle East and Africa. The Bank Asset-Liability Management program at Amsterdam Institute of Finance is based around his extensive experience in different banks and different countries around the world, all of which do things slightly differently.
The three-day program guides participants through the key areas of bank ALM, including integrated ALM origination framework, capital management, liquidity risk, funds transfer pricing (FTP), interest rate risk in the banking book (IRRBB) and asset liability committee (ALCO) governance framework.
“The program is practitioner-led and practitioner-focused. It’s an attempt to present a best-practice approach, based on practical experience and lessons learnt doing this work over 30 years,” he says. Material from two of Moorad’s books, The Moorad Choudhry Anthology and The Principles of Banking, are used in the program, and class exercises play an important role in the discussions. While it’s not a course for complete beginners, accessibility and interaction at all levels are emphasized, and genuinely practical advice is shared.
“Finance is as much art as it is science and there’s more than one answer to any one problem. Delegates are split into teams to do exercises, and the idea is to get people to exchange their ideas and opinions of what they consider to be best practice. I’ll give my rationale, but I’m always open to hearing other interpretations and discussing them,” he says.
At the end of the course, delegates will have a balanced scorecard to use in their own work environment, says Moorad. “You can look at my way of doing things, compare that to your way of doing things at your bank, and decide whether things are good as they are or they could be changed, and how.”
With his passionate belief in the benefits of knowledge transfer, Moorad says that, for him, the best part of his training is seeing delegates take what they’ve learnt back into their own organizations and apply them there. “I get emails all the time from people who have done my courses saying that they are revamping the way they are doing certain things, be it their ALCO terms of reference or their stress testing, or otherwise putting their knowledge to good use.”
“Bankers in the ALM space have a key role to play, not only in regulatory compliance, but also in the efficiency and competitiveness of their organization. Understanding and using strategic ALM can help them satisfy the sometimes competing demands of the regulator, the customer and the shareholder.”