Liviello, Antonio
[UCL]
Ducuroir, François
[UCL]
For a decade, the ALM is facing to a low interest rate environment. This prolonged period affects negatively the profitability of a bank which induces it to increase its risk-taking. That led the regulators to change the interest rate risk in the banking book (IRRBB) framework. They increased the complexity of the interest rate risk measurement to get results in line with the current low rate environment. In this sense, the bank needs to compute more complex stress scenarios and a more complete way to describe its interest rate risk. There is another challenge for the ALM such as the interest rate risk measurement for the non-maturing liabilities. With this low interest rate environment, the volume of the non-maturing accounts is unstable. Indeed, the customer would withdraw his money because of a highly liquid environment and poor return on the accounts. Moreover, there is a strong competition in the supply of these non-maturing accounts. For the measurement, a replicating portfolio can be computed statically or dynamically. However, in a rising rate environment, the static replicating portfolio is not appropriate anymore. New comers could benefit from higher rates since this approach is backward-looking and uses historical observation with a moving average. This is why the bank must switch to stochastic modelling such the dynamic replicating portfolio or OAS models which are forward-looking. This resolves two problems: the interest rate risk assessment and the hedge against the new comers’ threat in a rising rate environment.

Bibliographic reference |
Liviello, Antonio. *Assessing the consequences of low rates environment on ALM and non-maturing liabilities modelling.* Faculté des sciences économiques, sociales, politiques et de communication, Université catholique de Louvain, 2018. Prom. : Ducuroir, François. |

Permanent URL |
http://hdl.handle.net/2078.1/thesis:16026 |