VBC’s full-service outsourced asset-liability modeling includes all aspects of a comprehensive modeling program and is fully customizable to meet your institution’s unique needs. We are not just report providers. Our goal is to be an extension of your internal team by providing advice and insight to help you meet the challenges of modeling and managing the interest rate and liquidity risk of your institution.
Outsourced Asset-Liability Modeling
VBC’s modeling value proposition is simple: our services are fully customizable. We load and process your data in one of two industry-leading ALM models (depending on size and complexity of balance sheet) and do not require a specific chart of accounts structure, but rather customize the model to fit the unique characteristics of your balance sheet and institution. After reports are provided, we offer full ALCO support via onsite visits or remote teleconference, as well as support in the development of stress testing and balance sheet strategies.
Liquidity Stress Testing
Utilizing cash flows from the A/L model, we create a fully customizable, multi-scenario liquidity stress test model. Scenarios are typically based on a theme, such as a capital markets stress event or an institution specific stress event. The model incorporates key assumptions such as loan losses, deposit outflow and access to wholesale funding.
In order to help understand model results and refine assumptions, VBC offers a comprehensive model back-test report that compares model forecast results to actuals. The report includes a rate/volume analysis as well as a brief narrative explaining the sources of variances.
Non-maturity Deposit Study
Analysis of institution-specific historical data for non-maturity deposit accounts to determine modeling assumptions for decay (mortality) rates and rate sensitivities (repricing betas). These assumptions will be robust, transparent and supportable.
Our methodology for calculating repricing betas includes calculating correlations between deposit rates and market rates (i.e. LIBOR, Fed Funds) in various rate cycles, as well as measuring for the strongest monthly lags. Regressions, using least squares, are applied to coincident and lagged monthly rates.
VBC employs numerous methodologies for assessing decay rates including the use of different matrices of balances, number of accounts, open/closed dates and numbers of accounts open and closed. In addition, for more accurate measurement, we utilize Survival Analysis, which calculates the number and age at which accounts are closed.
Loan Prepayment Study
Analysis of historical data for loan prepayments to determine modeling assumptions that are category, term and interest rate profile specific. By utilizing account level data from sequential periods, this analysis will provide the institution with actual historical prepayment speeds for each loan in its portfolio. Results can be viewed at the total loan level, by loan group and/or by relevant sectors. Depending on the data received, results may include Age, Balance Tier, CPR Tier, Coupon or Loan Type.
Our approach to model validation is unique in the industry and covers all types of financial risk models. Our validations comply with all model validation Regulatory requirements, including Section V of the Supervisory Guidance on Model Risk Management (SR 11-7), and all of our work is performed from a practitioner's point of view. All of our model validation team members have extensive prior experience in treasury, finance and credit roles at financial institutions, which simply means – we get it. We’ve been on your side of the table and understand the unique challenges facing financial risk modelers. Our validation report will cover all Regulatory requirements for model validation, and will also provide you with unique value-added insights that only a model practitioner can provide.
Our review covers all aspects of the modeling process including account setups and attributes, data and mapping, assumptions, reporting, and model governance. We also review model results and reports to ensure accuracy and compliance with internal policies. VBC's validation team has experience with all of the leading ALM models, including Fiserv (Sendero), ZM, Bancware, QRM, Profitstar and many others. We also license many of these models in-house.
Liquidity Stress Models
We review all data inputs, assumptions and scenarios of your stress model, and also focus on your overall liquidity risk management program, including policies and contingency funding plans.
Allowance for Loan and Lease Losses (ALLL)
In accordance with the Interagency Policy Statement on the Allowance for Loan and Lease Losses (SR 06-17), we perform a comprehensive review of ALLL methodologies, assumptions, calculations, reporting and governance processes. Our validation experience ranges from simplistic Excel-based models to more complex software models that include loss migration analysis. We place significant emphasis on qualitative adjustment factors and accompanying support analysis and documentation. VBC's validation team has experience with all of the leading ALLL software models, including Sageworks and MainStreet Technologies (MST).
CRE Stress Testing and Credit Models
VBC has experience validating various types of credit models, including CRE stress testing, credit loss models (PD/LGD), loan performance stress models, cash flow models, loan valuation models, early warning models, and credit scoring models. Our validation of these models is similar in approach to our ALLL model validations focusing on methodologies, assumptions, calculations, reporting and governance processes.
DFAST/CCAR - econometric, PPNR, aggregator models
VBC offers model validation services for all models related to the DFAST/CCAR process. These include econometric models, PPNR models (asset-liability models or Excel based) and aggregator models. Please review our DFAST/CCAR services for further detail.
Model Risk Management & Governance
As a second line of defense, an effective and independent MRM program is critical. Boards and management rely heavily on model output to make strategic and/or operational decisions and it is important to have a proper program in place to ensure accuracy and reliability. Installing a well developed Model Risk Management program will enable your institution to organize and capture the risks associated with running models and also provide an “effective challenge” environment as prescribed by regulators.
Development of fully-integrated model risk management and governance framework
- Building a solid risk management structure to oversee all models and their associated risk is essential to mitigate model risk.
- Deploying effective governance, policies and controls to enhance the program.
Model Inventory & Risk Grading
- Completing a current list of all models and their associated risk rating must be available and accessible to ensure appropriate risk management.
- Establishing a comprehensive process to identify and log new models as they are designed and deployed across the enterprise.
- Designing an effective and intuitive model risk rating system to ensure the most critical and/or complex models receive the appropriate level of attention.
Risk assessment process and utilization
- Developing a risk assessment process to fully capture the extent of all the associated risks a given model may encompass.
- Integrating risk assessments into the risk rating and validation frequency schedule.
Staffing/resource requirements and deployment
- Assessing the requisite unique skills and resources needed to run a Model Risk Management program that fulfills the specific needs of your institution.
- Providing independent subject matter experts for co-sourced and outsourced model validations.
- Offering independent human resources at any stage of an MRM program, whether in development of in a mature state of existence.
VBC offers a full range of DFAST/CCAR services including model development and model validation. In addition to broad econometric modeling expertise and experience, all of our DFAST/CCAR team members have extensive prior experience in treasury, finance and credit roles at financial institutions. This allows us to ensure that model results are statistically sound and that there is a balance between model theory and practice.
Model Development - econometric, PPNR, aggregator
VBC can assist with the development of all DFAST related models in order to ensure the institution is in compliance with forecast and reporting requirements. The model development program includes assistance with detailed documentation of methodologies, assumptions and model governance. Our service includes the development of:
- Econometric or more simplistic Excel-based models for forecasting key PPNR components such as balances and pricing spreads, credit losses, the allowance for loan and lease losses (ALLL) and provision expense, and non-interest income and expense.
- Aggregator models for aggregating all sub-model results and populating DFAST reporting templates for balance sheet, income statement and capital ratios. The institution can choose between using existing asset-liability model or an Excel-based solution.
Model Validation - econometric, PPNR, Aggregator
VBC’s DFAST/CCAR model validation service complies with SR 11-7 (Supervisory Guidance on Model Risk Management) and SR 12-7 (Supervisory Guidance on Stress Testing) and focuses on the following three core elements:
- Evaluation of conceptual soundness, including developmental evidence (model overview, development and assumptions)
- Ongoing monitoring, including process verification and benchmarking (results and reporting)
- Outcomes Analysis (governance, policies and controls)
We review model theory and logic (including statistical methodologies and transformations), data inputs and assumptions (segmentation, stratification and aggregation), model results (code and mathematics if necessary and ensuring results are consistent with Regulatory requirements), documentation and model governance, and security/access controls. A primary goal of the validation is to ensure there is sufficient balance between model theory and practice.
VBC can also develop challenger and/or parallel models.
VBC offers numerous customized consulting services. Some of our offerings are detailed below. Please contact us for any custom consulting needs.
Current Expected Credit Loss (CECL) implementation consulting services
VBC can assist with the transition to CECL life-of-loan modeling requirements. Our services include assessing core system data capabilities and assisting with Excel-based model development or software-based implementation.
Policy Development and Reviews - A/L, Liquidity, Capital, Credit & Governance
VBC can assist with the development and/or refinement of all Treasury and Credit related policies. We will assess policy objectives, responsibilities and duties, due diligence and documentation, reporting requirements, exposures and limits, and governance.
Balance sheet valuations
VBC can assist with the valuation of various on and off-balance sheet instruments including ASC 350 for CDI impairment testing, ASC 805 for acquisition purposes, ASC 820 for annual disclosure of fair value of certain financial instruments, and ASC 825 (previously FAS 107) for periodic disclosure of certain financial instruments.
BSA/AML Advisory Services
The current BSA/AML environment is one of zero tolerance for exceptions and we continue to see increasing regulatory action for institutions with program weaknesses. VBC can assist your institution to develop a fully compliant BSA/AML Program in an efficient and effective manner and our CAMS certified consultants have a deep understanding of regulator expectations and best practices.
- Design programs to comply with a zero tolerance BSA/AML environment
- Develop a detailed, highly nuanced risk assessment process and report to fully comply with regulatory guidelines
- Conduct comprehensive model validations
- Evaluate and document the veracity of your data integrity
One stop shop to remediate all aspects of regulatory findings including:
- Regulatory Compliance
- BSA/AML Programs and Systems