In banking and financial management, the disciplines of capital and liquidity are often discussed in isolation. Capital, with its focus on absorbing losses and maintaining solvency, is typically viewed as a buffer for the long-term viability of an institution. Liquidity, on the other hand, deals with the immediate ability to meet obligations and maintain day-to-day operations. While these areas may seem distinct, managing them together is not just beneficial—it is essential for building resilience in a volatile environment.

Scenario analysis has become a critical tool in the arsenal of treasury management, enabling financial institutions to prepare for unexpected events and navigate through uncertain economic landscapes. The importance of this practice cannot be overstated, particularly in today’s increasingly volatile global economy, where unforeseen events such as economic downturns, market shocks, or geopolitical upheavals can have profound implications for a bank’s financial health.

The landscape of treasury operations is undergoing a profound transformation, driven by the rapid adoption of digital technologies and automation. As financial markets and economic environments grow increasingly complex, the role of the treasury function within organisations has become more critical. Treasury operations, traditionally seen as a back-office function focused on cash management and liquidity, are now at the forefront of strategic financial management. This shift is largely attributable to the integration of advanced technologies such as Artificial Intelligence (AI), blockchain, and automation, which are redefining the efficiency, accuracy, and scope of treasury management.

Stress testing has undergone a significant transformation in the banking industry. Once primarily a regulatory requirement, it has evolved into an essential tool for strategic planning and risk management. This evolution reflects the increasing complexity of the global financial system and the need for banks to not only comply with regulatory standards but also to ensure their resilience in the face of unforeseen challenges. In this article, we will explore the journey of bank stress testing, from its inception as a regulatory measure to its current role as a cornerstone of strategic planning.

Bank treasury management is a crucial element in ensuring the financial stability and operational efficiency of financial institutions. At its core, the role of the treasury is to manage liquidity, funding, and interest rate risks, while optimising the bank’s balance sheet. One of the essential tools in the treasury’s arsenal is behavioural modelling. By anticipating customer behaviour, banks can make informed decisions that help mitigate risks and enhance profitability. This article delves into various behavioural modelling techniques used in bank treasury management, such as prepayment modelling and deposit decay rates, and explores how these models assist banks in managing risks more effectively.

Forecasting in banking is a critical function that impacts decision-making across various departments, from risk management to strategic planning. However, forecasting is fraught with challenges, particularly when it involves behavioural modelling and economic predictions. The primary challenge lies in striking a balance between achieving high levels of accuracy and maintaining realistic expectations. This article will delve into the intricacies of forecasting in banking, exploring the inherent difficulties and the importance of balancing these two often conflicting objectives.

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Liquidity management is at the core of banking operations, serving as a crucial safeguard against instability, particularly during periods of financial uncertainty. The ability of a bank to meet its obligations as they come due—without incurring significant losses—is fundamental to its survival and the broader health of the financial system. This article explores the essential role of liquidity management in maintaining bank stability, examines common liquidity metrics, and delves into how banks address both short-term and long-term liquidity needs.

In today’s complex financial environment, the role of a bank treasurer extends far beyond managing liquidity and capital. Treasurers are strategic leaders, providing critical insights that shape the financial stability and future growth of their institutions. They balance risk, ensure regulatory compliance, and leverage new technologies to enhance decision-making.

Interest Rate Risk in the Banking Book (IRRBB) is a critical concern for financial institutions, as fluctuations in interest rates can significantly impact profitability and capital. In this article, we delve into the essential role derivatives play in managing IRRBB, offering insights into how tools like interest rate swaps, forward rate agreements, and options can stabilize a bank’s earnings and protect its capital. For those looking to implement these strategies, our members' section at the Global Banking Hub offers comprehensive 'how-to' guides and in-depth resources tailored for treasury professionals.

In banking, the Asset-Liability Committee (ALCO) is central to managing a bank's balance sheet, overseeing risks related to interest rates, liquidity, and capital adequacy. While technical expertise is vital, the true effectiveness of ALCO hinges on the collaboration between its diverse members, including those from treasury, risk management, and finance.

Effective collaboration within ALCO is essential for informed decision-making. It requires open communication, where members can express views and challenge assumptions freely, fostering an environment of trust and mutual respect. Such collaboration allows ALCO to integrate diverse perspectives, leading to more balanced risk assessments and strategic decisions.

Strong leadership within ALCO is also crucial, ensuring that all voices are heard and guiding the committee toward consensus. When these elements—communication, trust, respect, and leadership—are in place, ALCO can enhance a bank's stability and success, making it a powerful engine of risk management and strategic decision-making.

The European Banking Authority has recently updated its Guidelines on Interest Rate Risk in the Banking Book and Credit Spread Risk in the Banking Book. These new guidelines are not a mere repetition of their predecessors; they signify a prudent and targeted approach to the evolving landscape of financial risks. One of the key features includes refined criteria for identifying non-satisfactory internal models for managing IRRBB, as well as specific criteria to monitor CSRBB. These amendments reflect the EBA’s commitment to ensure that financial institutions have robust internal mechanisms to mitigate risks associated with interest rate fluctuations and credit spread risks.

The article provides an overview of the Basel III Endgame (B3E), a set of crucial updates to the Basel III framework aimed at bolstering the global banking system. It outlines the extended timelines for implementation in regions like Europe and the US, pointing out the transitional allowances that have been put in place. The article also elaborates on the heightened capital requirements that banks are expected to meet, emphasizing how these stipulations now include considerations for risks associated with climate change and ESG factors. The article further discusses the broader application of these updates, mentioning their impact on not just the largest banks but also on mid-sized and regional banks.

The article offers an in-depth exploration into the complexities of stress testing in the banking sector, particularly highlighting its evolution post the 2008 financial crisis. It delineates the anatomy of a stress test, examining how various adverse scenarios are modelled to assess a bank's resilience. A distinction is made between microprudential and macroprudential stress tests, showcasing how they vary across different regulatory environments like the EU, UK, and US. The article also touches on the criteria that make a stress test credible, including robust methodology and alignment with risk appetite. Furthermore, it delves into the dual objectives of stress tests in the UK and how they serve as critical inputs in recovery planning. Through this detailed analysis, the article underscores the importance of understanding the intricacies of stress testing for banking professionals committed to ensuring financial stability.

The article provides a comprehensive overview of the regulatory landscape that Deposit-taking and Lending Banks (DTLBs) navigate, highlighting the complexities and nuances involved. It outlines the multiple layers of financial regulation from global frameworks led by the Financial Stability Board to country-level implementations, all aimed at ensuring financial viability and fair customer treatment. A focus is placed on the Basel accords, which set international standards, and the shift towards regulations that significantly impact banks' business models. The article stresses the necessity for banking professionals to have a thorough understanding of these regulatory intricacies to maintain financial stability and customer trust, even as they adapt their strategies to comply with evolving rules.

This article delves into the intricate subject of interest rate risk management, particularly focusing on the strategies employed by banks like Metro Bank in navigating these challenging terrains. It offers an exploration of hypothetical scenarios that question established assumptions about "core" deposits and their stability in different economic climates. Moreover, the article scrutinises the efficacy of various hedging strategies, especially those reliant on current accounts, and how they might stand up against a different set of economic realities.