Emerald Group Publishing Limited
Copyright © 2004, Emerald Group Publishing Limited
Reflecting the growing influence of the Asset and Liability Management Association
Reflecting the growing influence of the Asset and Liability Management Association Robert Bruce
Robert Bruce, Editor of Balance Sheet, reports on the 2004 annual conference of the Asset and Liability Management Association.
The 2004 annual conference of the UK Asset and Liability Management Association saw one clear and important step at the outset. The Association decided to spread its wings by dropping the "UK" from its name and will henceforth look to growth in Europe and around the world. The aim is for the ALMA, as it will now be known, to be more involved in a pan-European market and to perhaps put a bit more effort into a lobbying role. It was agreed that it needed a broader reach into Europe and possibly the US as well.
The event opened with a speech from the Executive Director of the Bank of England, Paul Tucker, who covered a wide range of topics and thoughts for the future on the financial services industry as a whole. The speech, in its entirety, is published in this issue of Balance Sheet.
The conference proper was provided with an extremely useful opener from Geoffrey Dicks, the Chief UK Economist with the Royal Bank of Scotland. He took the view that all you need to know about the economic outlook is that it is an American election year. So a US-led global recovery was under way. And in Europe the demographics were going the wrong way. He pointed out that the UK was unique in the G7 grouping having not had a single negative quarter in the last ten years. "Europeans who want to see an economic recovery will have to watch it on tv", he said.
As for the future, as with all economists, he hedged his bets. 2005 looks imponderable, he thought. But he suggested we should not worry as 2004 will be a great year.
Then Edward Short from Deutsche Group talked about stress scenarios in liquidity management. He said that there was an increasing focus on liquidity management from both regulators and ratings agencies. He suggested that stress testing of liquidity should be used best as an early warning of weakness areas. Liquidity management has to be tightly integrated right across the bank, he urged.
Andrew Smith, Head of Operational Risk at HBOS, then gave a personal view of insurance risk on the bank balance sheet.
He was followed by Walter Pompliano, Director – Financial Services at Standard & Poor's Rating Services who spoke on the impact of liquidity and asset and liability management on credit ratings. He too talked of stress testing and suggested that a strong deposit base was the underlying strength of core profitability.
Ian Stewart of HBOS gave a presentation on the investment attractions of covered bonds. Then Nick Lock and Paul Newsom from the Financial Services Authority talked about treasury systems and controls and the FSA Thematic Review. They indicated that their investigations suggested that risk management was not very good within financial institutions' treasury operations. They produced numerous doubts about, for example, the efficacy, value and understanding of the role and uses of internal audit. The message they put across was that people were installing systems but not then learning very much from what those systems produced in the way of risk management findings.
In many ways the FSA work suggested that the risk management side of the banks' work was still suffering from the traditional failings of asset and liability work being seen as arcane and technical and hence concentrating on those aspects rather than the broader risk management picture.