BancPath©

 

 

We offer a range of asset liability management services that are designed to meet regulatory expectations while also managing risk and improving margins.

We remain focused on the management of community bank balance sheets. Our goal is to work with our partner banks to increase profitability and reduce risk. Our clients view us as trusted advisors and we feel that the results speak for themselves. Our services are centered around analytics and using quantitative analysis to improve results. Our basic business is taking data, and turning it into valuable insight that can used to positively impact business. Consulting is a part of everything we do. Adding our experience and expertise to interpret each banks balance sheet is where the true value of our service lies.

We offer interest rate risk reporting and consulting via BancPath©, our proprietary ALM model. The BancPath model is an outsourced solution, not a software package, and can be run either monthly or quarterly. In addition, we have bridged the gap between the ease and reliability of an outsourced solution and the flexibility of an in-house model. We do this via our unique Excel-based “What If” module which allows our clients to input assumed changes for balance sheet growth and/or allocation and instantly see the impact on both margins and risk through a range of interest rate scenarios.

The BancPath model was designed to be a turnkey service that meets all regulatory guidance, as we use bank data to calculate “real time” assumptions, including those for deposit betas, loan betas, non-maturing deposit lives and prepayment speeds. We also include templates for ALCO meeting agendas and minutes. With our proprietary model, we are able to offer rare flexibility within an outsourced solution.

In addition to reporting, ongoing consulting is included with the price of the service. A specialist is always available to review reports, risk position, policies, pricing strategies, and exams. Our goal is to become a trusted partner in managing any bank’s balance sheet.

 

SERVICES

BancPath© Interest Rate Risk Model

Reporting:
The reports generated in the model are designed to be a comprehensive and turn-key analysis of the balance sheet. Rather than simply meeting regulatory requirements, the reports provide management and the board with a view of current and projected risk, as well as reviews of performance and pricing efficiency in all major balance sheet categories. In addition, the report package is constantly changing in response to regulatory guidance, client requests, and trends in exams.

Income Simulation:
As stipulated in the regulatory guidance on interest rate risk, the BancPath model measures short term interest rate risk by simulating a bank’s net interest income over a multi-year period through a wide range of interest rate scenarios (including rate ramps and shocks up and down 500 basis points as well as several non-parallel scenarios). The model is able to incorporate both static and dynamic balance sheets, as well as custom risk limits and custom rate scenarios.

Market Value of Equity (MVE):
In addition to short term interest rate risk, the model also measures long term interest rate risk through a market value of equity calculation. In this process, the current balance sheet position (including balances, rates, and durations) is marked to market based on current market offering rates for similar instruments. The market value of equity can be compared to bank specific risk limits for minimum levels and volatility.

Forecast Performance:
The majority of bank reporting is accounting based and backward looking. Our goal is to provide insight that allows management and board discussions to focus on what is coming as opposed to simply reviewing what has already happened.

Pricing Efficiency:
While most ALM systems focus on duration, ours focuses on the aspect that we can control: pricing. The bank’s risk profile and marginal profitability are determined by pricing decisions. Since the BancPath model uses instrument level data, we are able to provide a number of reports that measure recent pricing against market and peer rates. Adjusting this behavior is what allows banks to manage risk and squeeze extra basis points of profit out of normal monthly activity.

Liquidity Reporting:
Since liquidity risk is a major component of asset liability management, most ALM models now include some form of liquidity reporting. However, by using instrument level data, the BancPath model is able to take it a step further and provide both static ratio reports and forecasted liquidity levels with stress tests. This element covers another reporting function that is being handled somewhere in the bank, and can now be automated via the normal monthly data feed for the service.

Settings and Assumptions:
The recent trend in interest rate risk modeling is that it’s not the risk position that gets you in hot water – it’s the modeling process instead. Because of this, approximately half of the BancPath report package consists of an addendum that documents all of the inputs in the model. Reports are provided that reconcile database files to general ledger accounts, list all settings and assumptions, and document the basis of any assumptions. For example, a “Beta Calculator” is included to show how pricing relationships are determined.

What-If Capabilities:
One of the down sides to using an outsourced ALM model is that you typically lose the ability to dynamically model strategies in order to gauge the impact to both risk and income. In order to bridge this gap, we developed a separate module to allow for what-if testing. This module is in Excel format. This way the integrity of the risk management process is maintained while still giving the user maximum flexibility in using the model as a decision-making tool.

Consulting:
Finally, perhaps the most important component of the BancPath service, is the ongoing consulting that is included. One of our specialists will work with you throughout the process, from generating good data to understanding the model outputs to implementing pricing strategies. Our representatives work with community banks on a daily basis, and can provide valuable insight on tactics that are working, tactics that are not working, and recent trends in exams and audits. We are as involved in the process as the client wants us to be. We aim to become a trusted partner in managing our client’s balance sheet. We measure success with results. The value of the service is easy to see when we track our clients against the rest of the industry.