Role of Bank Treasury

What is the difference between Treasury and ALM?

Unfortunately, there is no commonly agreed terminology. Most firms use the term "treasury" to cover all related activities associated with managing Liquidity and Funding, Capital, and Interest rate risk in the Banking Book (IRRBB), Funds Transfer Pricing and market-facing execution, alongside a huge range of possible reporting undertakings (both internal and regulatory) and hedge accounting.

What are the three lines of defense models in banks?

• 1st Line - Risk Takinpg. Generally, those that deal in markets and take decisions with balance-sheet implications, also known as "Risk Owners", although slightly confusingly, they will also have responsibilities for risk management, so this area is better described as "control owners"
• 2nd line- Risk Oversight. Those that have general oversight for risk positions versus limits or risk appetites, alongside writing policies and giving guidance on the appropriate definitions and procedures to implement policies.
• 3rd line – Risk Assurance. Probably the simplest being internal audit

What does the treasury actually do?

• Cash management - Treasury tracks day-to-day net cash flows, also known as cash management. This covers the settlement and squaring of nostro accounts, that is, the accounts banks have with other banks, alongside collateral movements and accounts with the Central Bank. It amounts to the ability to meet financial obligations.
• Liquidity management - It includes Treasury buying a selection of securities that are likely to be near cash.
• Funding management - It includes customer deposits and senior unsecured debt issuance raised in the wholesale market, both short-term and long-term.
• Capital management - Bank capital must be proportional to the amount of risk it takes to ensure the bank’s continued solvency, both in business-as-usual and under extreme but plausible stress.
• Recovery and resolution - This is a set of processes for understanding and planning for exceptional circumstances and the ability to react to this (recovery) or if the bank fails and the regulators need to take over (resolution).
• Interest rate risk in the banking book - The essence of IRRBB is both to identify and net re-pricing opportunities and also manage the stability of the bank’s Net Interest Margin.
• Funds transfer pricing - The process of efficiently pricing the internal price of money within the bank.

What is TLAC and MREL?

TLAC refers to Total Loss-Absorbing Capacity, which is the standard that requires the world’s largest banks, so-called Global Systemically Important Banks, or G-SIBs, to issue capital instruments that absorb losses and allow them to recapitalise while remaining going concerns.

MREL stands for Minimum Requirement for own funds and Eligible Liabilities. This is the EU’s version that requires banks to issue securities that absorb losses.

What are the main objectives of FTP?

• Transfer interest-rate, liquidity and funding risks to the treasury at a rate that reflects the risk being assumed by the bank.
• It also makes the liquidity buffer and funding costs transparent to business lines.