Treasury Management – Liquidity, Interest Rate, Foreign Exchange and Capital Risk Management

Treasury management is a critical aspect of all operating entities, but the Treasury function within a bank is particularly important given a bank’s funding dependencies and complexities, its liquidity requirements, and its exposure to interest rates.

The responsibilities of a Treasury organization are many and include: 

• Balance Sheet Management- Participation
• Liquidity Management
• Funding - Managing and initiating
• Asset/Liability Management
• Interest Rate Management
• Transfer pricing - Methodology and management
• Investment Account & Surplus Funds Management
• Foreign Exchange Exposure Management
• Capital position Management - Participation
• Regulatory Compliance - Pertaining to Treasury responsibilities  

Funding can be very multifaceted and complex and requires considerable financial market knowledge and funding relationships. Funding is very intertwined with liquidity management. Asset/liability management and interest rate risk management are also interrelated. Although this presentation is relevant to the treasury organization of any organization, it particularly focuses on a bank’s treasury function.

Each responsibility of a Treasury organization requires a considerable knowledge base to manage the responsibility. Given that the mismanagement of any of these responsibilities can generate considerable risk to an institution, this presentation can also be considered an education in the management of Treasury Risk. Sound Treasury Management practices together with a well-educated Treasury staff can ensure the effective management of key functions of a bank and avoid the potential of Treasury risk episodes occurring. This presentation allows the participants to reflect on Treasury Management concepts and obtain an in-depth understanding of the Treasury Management thought processes.  It is intended that this Treasury Management presentation provide insight into a deep understanding of the balance sheet of a bank and how its structure and management can impact many key functional aspects of a bank. As can be seen from the identified presentation topic areas to follow, the roles and responsibilities of a bank Treasury organization are multifaceted and involved.

To provide an in-depth understanding of the roles and responsibilities of the Treasury Function and an examination that addresses

• Risks to be managed
• Nature of each area of risk
• Treasury management practices
• Treasury management tools

Understanding the management of the balance sheet

• Funding
• Asset/Liability Management Structure
• Loan Pricing
• Transfer Pricing
• Foreign Exchange Exposures
   

Nature of Funding

• Composition
• Dependency
• Ratio Evaluation
  
  

Non-Wholesale Funds Relative to Wholesale Funds

• Makeup
• Characteristics
• Stability
  
  

Liquidity Risk Management

• Key Elements to Consider
• Wholesale Funds Dependency
• Market Share Evaluation
• Fund Provider Analysis
• Maturity Structure
• Investment Liquidity
  
  

Interest Maturity Risk Management

• Gap Analysis
• Asset/Liability Pricing
• Asset/Liability Maturity Mapping
• Use of Derivatives
• Stress Testing
• Guidelines
  
  

Foreign Exchange Risk Management

• Identification and evaluation
• Hedging Analysis
  
  

Transfer Pricing

• Conceptual Framework
• Methodology
  
  

Capital Management

• Requirements
  - Key Ratios
  
  

Asset/Liability Management Committee

• Oversight Responsibilities
• Treasury Function Interaction

Treasury risk management is a critical function within financial institutions, focusing on the identification, measurement, and mitigation of risks related to liquidity, interest rates, foreign exchange (FX), and capital management. Effective management of these risks is essential to ensuring financial stability, profitability, and regulatory compliance.