Interagency Guidelines require Asset / Liability Model Reviews to be performed by an industry expert that is not part of the Bank’s management process. Due to the complexity of simulations models as well as the management processes centered around the model, we feel that ALM Reviews are best conducted by a consultant who has both operated a model and presided over an ALCO. Our low-cost structure enables Quantum to provide top shelf service at reasonable prices.
Investment Trade Execution Oversight and Portfolio Strategies
Quantum’s founders have been both Portfolio Managers and Licensed Fixed Income Salespeople. We feel that having significant experience on both sides of a trade is a strong advantage. We find that simply being involved with the trade process usually decreases execution cost by at least ¼ point which is $2,500 on a $1Milllion trade. From a strategic standpoint, we like to custom tailor strategies for balance sheet needs. This incorporates both interest rate risk management concerns as well as liquidity and credit risk.
Liquidity Reviews were once included in our comprehensive ALM reviews. Regulators have requested that these are performed as a stand-alone review for institutions with a higher degree of aggregate risk. Quantum has extensive experience in managing wholesale funding, off balance sheet funding sources, liquidity continency situations, and tertiary sources. Our approach is not to simply prescribe a process for fit for complex multi-billion dollar organizations (unless that is what is warranted) but to look at management resources and pair them to the aggregate level of liquidity risk.
Although capital levels are subjective and should commiserate with the level of risk in a financial institution, regulatory developments have placed capital management in the spotlight. Banks are required to maintain Tier1, Core and Risk Based Capital buffers. When growth and changes to concentrations risks come into play, it is important to have a well-documented capital plan. Our plans are customized for your institution and have been reviewed by multiple regulatory agencies.
Asset / Liability Consulting
Given the time constraints on cashiers and CFO’s coupled with the earnings implications of even a few basis points of net interest margin, it is often beneficial to employ an external expert to help facilitate the interest rate risk management process. Quantum has performed numerous such engagements for institutions that want to either increase earnings, mitigate risk or both.
While many institutions get their interest rate simulation work performed by bond sales companies, we feel that a level of independence is often a great way to go. This especially holds true for institutions with limited investment activity. Quantum provides interest rate risk simulations using an industry standard model. We feel that by using a strong model and using our expertise to facilitate in the assumption process, superior results can be achieved to use the simulation to both address regulatory concerns and more importantly to use the model as a management tool.
As institutions grow in both size and complexity, policies need to be tailored to be consistent with management practices and regulatory requirements. It is not uncommon for example language to be utilized to fill in the gaps for these needs. If this is done properly borrowing such language is much easier than reinventing the wheel providing that due care and attention is given to make sure that terms, limits and definitions flow properly. There are times these policies just need a simple review to address regulatory concerns and other times where an entire new comprehensive policy is more appropriate. Quantum’s process is to make sure whichever direction is appropriate to address management and regulatory concerns. We don’t feel that a “one side fits all” format is the proper way to go. Policies should be consistent with risk levels and management processes. All terms, limits and definitions should reflect this as well and be consistent with historical management processes. We can do everything from simple reviews to an entire re-write.