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What are the key ways in which FTP can enhance the way banks manage banking book risk?
FTP needs to ensure that the liquidity and interest rate risk a bank runs is properly priced. In order for this goal to be met, each and every product the bank offers to its customer needs to have a price component to reflect the above-mentioned risks. Besides insuring proper pricing of risks, FTP can be a powerful tool for steering the balance sheet of the bank.
How can behavioural models enhance FTP frameworks and overall governance of banking book risk?
Many products a bank offers do not have a clear repricing and liquidity profile (e.g. currents & saving accounts, overdrafts etc.). Therefore, behavioral modelling of these products and respective hedging operation is one of the cornerstones of effectively pricing and managing the interest and liquidity risk of the bank especially in case of banks with large retail operations. Besides the product related challenges, the customer behavioral models became more challenging with the different embedded optionality's (e.g. loan prepayments, deposit floors etc.) that became more prominent with stricter customer protection laws and negative interest rates.
What are the challenges in incorporating customer behaviour into FTP framework for more effective product governance in the banking book?
Besides the behavioral modelling challenges mentioned above and even if we manage to price sensitivities and embedded options at market prices, a risk remains that incorporating the different pricing elements outprices the bank from the market. Therefore future expectations and strategic decisions need to interplay with the behavioral models and respective prices.
What has to happen in order to truly develop and advance the management of banking book risk and what would you suggested banks prioritise looking forward?
Since all the products the bank has and each customers behavior influences the interest and liquidity risk of the banking book, it is of high importance to insure a comprehensive overview of the overall position and interplay of the different risks. Therefore both cross functional and cross border collaboration is essential, supported with well-structured and timely data flows.
What do you expect to see from the event that will benefit your approach to the management of banking book risk?
Exchange of ideas and experiences with colleagues facing similar challenges. I hope to hear some new ideas on behavioral modelling of retail current and saving accounts, especially in currencies having negative interest rates where the embedded floor option is pronounced.
An interview with:
Nebojsa Trajic, Head of International Asset Liability Management
Raiffeisen Bank International AG
Event Focus
Banks are constantly striving towards more effective governance of banking book risk. At the core of achieving this are effective hedging strategies to maintain basis risk and advanced behavioural modelling to better understand banking book risk. Both of these things would help to inform funding and balance sheet plans. With this in mind this marcus evans meeting will look at how banks can effectively govern IRRBB through advanced behavioural modelling for enhanced balance sheet structure and risk management positions.
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About the conference
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Nebojsa Trajic is currently heading the International Asset Liability Management (ALM) part of Treasury in Raiffeisen Bank International AG (RBI), supporting treasury operations of network banks in 13 markets in which RBI currently operates. He has joined RBI in 2012 after two years as Head of ALM operations in Raiffeisen Bank Belgrade where he has also worked as deputy head of Market Risk Department for another 5 years. In parallel he did some teaching courses in the International Schools of Belgrade in the area of applied mathematics. He has graduated from University of Belgrade, Department of Mathematics and did his master studies in Quantitative Finance from University of Belgrade, Faculty of Economics and South European Center for Contemporary Finance.
To view the Conference Agenda, click HERE!
For all enquiries regarding speaking, sponsoring and attending this conference contact:
Yiota Andreou
Email: Yiotaa@marcusevanscy.com
Telephone: +357 22849 404
Fax: +357 22 849 394
