Asset Liability Management & Interest Rate Risk in the Banking Book - Part 2 of 4

The Education of a Value Investor

In this episode, we continue our exploration of financial risk management with Eric Schaanning, a thought leader in the field. Following his dynamic insights from the previous discussion, Eric delves into the intricacies of treasury functions within major banks and their critical role in risk management. Together with Guy Spier, they unravel how a small treasury team, despite its size, manages significant financial risks compared to the larger pool of relationship managers.

Listeners will gain a clear understanding of complex concepts like yield curves and risk spreads, as Eric adeptly explains their implications in today's banking landscape. The duo examines the Basel Committee on Banking Supervision (BCBS) scenarios for interest rate shocks, pondering whether current banking models can adequately address extreme interest rate fluctuations.

As they venture into discussions on net interest income (NII) and the economic value of equity (EVE), Eric shares his expertise on how these concepts can be applied to personal finance, making the conversation relevant for individuals navigating their own financial landscapes. With an engaging blend of practical knowledge and theoretical insight, this episode offers valuable perspectives that push the boundaries of traditional risk management. Tune in for another captivating dialogue that not only expands your understanding of financial systems but also equips you with practical tools for managing your financial future!

Full transcript available here: https://aqfd.docsend.com/view/dyu45ikdqvarwf5p

Here's a link to the presentation: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5007032

Contents:

(00:00:00) Navigating Interest Rate Risks: A Deep Dive into Bank Balance Sheets

(00:08:57) Measuring Interest Rate Risk: Insights into NII, EVE, and Bank Profitability

(00:17:09) Banking on Transparency: The Impact of Regulatory Frameworks opn Financial Institutions

(00:31:18) Gap Risk in Banking: Insights from the Delta EVE Measure and Silicon Valley Bank

(00:39:56) From Crisis to Regulation: The Evolution of Interest Rate Risk Management

(00:53:52) Balancing Act: Large Banks, Regulation, and Operational Challenges

(00:59:21) Bridging Capital and Growth: Perspectives on Modern Banking

(01:23:55) Treasury Functions Unveiled: The Backbone of Risk Management in Banking

(01:29:02) Understanding Interest Rate Shocks: A Comprehensive Look at the BCBC Scenarios