R2Metrics offers a full range of ALM products with fast turnaround times, personal service, and reasonable prices.
Asset/Liability Model Validation:
As an independent 3rd party with many years of ALM experience, R2Metrics is capable of providing community banks with an annual Validation of their current asset/liability model, policies, and procedures. Our analysis will be guided by recent regulatory publications:
- Interagency Advisory on Interest Rate Risk Management FAQ
- Supervisory Guidance on Model Risk Management
- Advisory on Interest Rate Risk Management
From the Interagency Advisory on Interest Rate Risk Management FAQ:
“Question: Most institutions use third-party tools to measure IRR. Can independent certifications/validations commissioned by model vendors satisfy supervisory expectations for model validations?
Answer: No. Financial regulators expect each financial institution to ensure that the selected model is appropriate for its IRR profile by conduction of an independent review and validation and performing ongoing monitoring and back-testing to confirm model appropriateness.”
An effective validation framework is a critical part of an institution’s A/L model and IRR governance process. R2Metrics follows each of the steps outlined by Supervisory Guidance on Model Risk Management to ensure that your institution meets its compliance needs. The core elements are as follows (click element for details):
- Evaluation of Model Conceptual Soundness – Whether your bank uses an outsourced, vendor provided model or a model developed in-house, R2Metrics provides necessary 3rd party validations to evaluate conceptual soundness of the model.
- Asset/Liability Process Verification and Benchmarking – A 3rd party analysis to make certain your ALM is appropriately implemented and is being used and functioning as intended. This is essential to evaluate whether changes in products, exposures, activities, clients, or market conditions necessitate adjustments, redevelopment, or model replacement.
- Model Back-Testing, Outcome Analysis, and Assumption Analysis – R2Metrics provides a comparison of model outputs to corresponding actual outcomes and performs analysis on all model inputs and assumptions to verify their ability to predict actual balance sheet behavior.
Once completed, our analysis will help bank management and board members better understand:
- Timing and magnitude of short and long term interest rate risk
- Potential solutions to altering undesirable interest rate risk
- Inaccuracies or pitfalls with current forecasts
- Appropriateness of existing policies and procedures, given the risk profile, capital and earnings of the bank
Asset/Liability Management Consultation:
- Independent Review of Bank Asset/Liability Practices – We have the ability to perform a top down review of the bank’s overall A/L and IRRM policies, procedures, and practices.
- Parallel Asset/Liability Model Simulations – R2Metrics is one of very few independent vendors capable of producing an independent ALM report and then comparing asset and liability yield and cost sensitivity in order to trap out modeling discrepancies and improve model accuracy.
- Asset/Liability Management Policy Consultation – Our personnel have over 22 years of ALCO experience to help your bank produce or refine ALM, funding and liquidity, or investment policies.
Independent 3rd Party Valuation:
- FAS 107 – We provide a fast and inexpensive means of meeting your bank’s annual regulatory requirement for fair value pricing for all balance sheet items.