Asset/Liability Model Reviews and Validations

As an independent 3rd party with 15 years of ALM experience, R₂Metrics is capable of providing community banks with an annual Review (vendor sourced models) or an annual Validation (in-house models) of their current ALM policies and procedures. Our analysis will be guided by the Joint Policy Statement on Interest Rate Risk and the OCC Bulletin 2000-16 and will include recommendations regarding model accuracy and applications.

Our reviews will help your bank:

• Understand the timing and magnitude of short and long term interest rate risk
• Increased understanding of loan behavior, especially option related effects
• Better understand the potential solutions to altering undesirable interest rate risk
• Back test and important assumptions
• Ensure compliance with existing policies and recommend additions where applicable

The review is conducted by senior R₂Metrics consultants and includes a hands-on approach to verify all the model inputs and calculations.

For ALM Reviews (Out-sourced models)

• Model, IRR, and valuation assumptions and methodologies
• Reasonableness of asset and liability behavioral assumptions
• IRR analysis robustness matches the bank's balance sheet composition
• Data sources for model inputs accuracy
• Back testing of results to verify model
• Review of ALCO minutes and policies

For ALM Validations (In-house models) In addition to the items from ALM Review:

• Detailed analysis of the equations and math behind the model
• Review of the model controls
• Examination of model cash flows for each asset category and rate scenario
• Review of contractual-based inputs
• Assessment of loan model's ability to properly handle optionality
• Recommendations