Treasury & ALM

Treasury & ALM

Our understanding of Treasury covers the profit-orientated control of the interest and liquidity risk of a banking book, as well as the allocation of transfer prices in the form of funding costs. Furthermore, from our project experience it is apparent that the Treasury mandate typically involves the refinancing activities of the institute to guarantee a more durable and cost-effective financing, as well as to include the management of the liquidity investment portfolio to hedge short-term liquidity risk. 

On the basis of the historically low interest rates and the related earnings pressure, it means that the effective management of the banking book for the sustainable stability and profitability of the institute is becoming increasingly more important. For a modern Treasury the following cornerstones are paramount:

Governance/Organisation: The development of a clear Treasury structure with explicit roles and responsibilities, including a clear boundary between profit and service-centre responsibilities.

Funds-Transfer-Pricing (FTP): The development of internal models for liquidity cost allocation, to appropriately allocate interest and liquidity costs to the operational business areas.

Corporate Controlling Concept: Complete separation of all relevant risks in the banking book relating to interest-change and liquidity risk, and the allocation of clear risk and result responsibility.

Control Process: Mapping of all relevant banking book positions in one appropriate ALM or Treasury system for the representation of all risk and result components.

Indicators/Reporting: Establishment of an adequate indicator and management reporting system on the basis of a modern reporting and IT architecture.

Additionally, the Treasury department of an institution is confronted with growing regulatory requirements. After the financial crisis, the supervision of liquidity and interest-change risk has come to the fore for all. In addition, the commencement of reporting for both liquidity ratios (Liquidity Coverage Ratio (LCR) und Net Stable Funding Ratio (NSFR)) and the Additional Liquidity Monitoring Metrics (ALMM), ensures that regulatory pressure remains high. Also, noteworthy here are the new IRRBB requirements of the BCBS and the EBA for the handling of interest-change risk in the banking book. Therefore, associated with this is an increased expectation for the supervision of internal bank risk management processes for the interest-change risk in the banking book, as well as clearly expanded disclosure requirements.  

We have extensive experience with operations and strategic projects in the Treasury department of banks and possess an in-depth expertise in the management of liquidity, interest and FX risks from an economic and regulatory perspective. Our project experience demonstrates that alongside functional competence, technical expertise in particular is also crucial for success. Therefore our core competence is the comprehensive support of our customers. We design with you the target architecture around your ALM-system, your data warehouse and data flows and the associated processes. We set the reporting based upon your needs and regulatory requirements and support you until the rollout of your new software solution.

Our Service offering in the domain of Treasury and Asset Liability Management:

  • Conception and implementation of methods to measure and control the short-term structural liquidity risks.
  • Conception and implementation of methods to measure and control the interest risk in the bank book from a net-present-value and periodic perspective.
  • Conception and implementation of new FTL-methods in the pre-and-post calculations of a bank.
  • Conception and implementation of regulatory requirements for Treasury and ALM, in particular LCR, NSFR, ALMM, IRRBB and Asset Encumbrance. 
  • Selection and introduction of modern ALM/Treasury systems (for example Ambit Focus, Calypso) and the setup of efficient reporting and IT architecture in Treasury.
  • Analysis and evaluation of existing Treasury processes and the support for their optimization and automation.

Have we roused your interest in our services? Our experts can happily discuss the latest topics regarding Treasury with you on site.


Our mandate from a German Landesbank was the business and technical redesign of an internal model for the measurement and management of short-term liquidity risk. Originator of this project was the new ILAAP guideline of the ECB and the requirements posed towards the duality of the economic and normative steering tool for liquidity risk. The technical basis for the redesign of the internal model was the standard software Ambit Focus and the existing treasury database of the bank. Next to taking on the business project lead, Firstwaters also assisted in analysing the status quo, specifying new functional and non-functional requirements, implementing a solution based on Ambit Focus and testing until Go-Live.

Based on the EBA Guideline (EBA/GL/2018/02) and the requirements of BCBS 368 a German Landesbank has identified the implementation of the periodic interest rate risk dimension (NII Simulation) as a fundamental sphere of activity. As part of the project we worked together with the client to establish the business cornerstones of the periodic interest rate risk measurement. This included the definition of the risk measurement of the periodic dimension, the determination of the relevant accounting standard, the definition of the risk measurement, the conception of the basis / risk scenarios and the comprehension of subsidiary companies. On the base of the standard software Ambit Focus we took care of the detailed specification of the central parameters and the conversion of the necessary calculations for the NII-Simulation. Our project activities resulted in the execution of the acceptance test and the solution was successfully rolled out to production.