ALM Model Verification : ALM Model Verification

The MPS ALM Model Verification Service establishes the high levels of business and regulatory confidence needed to fully use an ALM model as a performance management and risk analysis tool.

MPS model risk assessments provide industry-leading solutions for verifying and validating that an ALM model meets business best practice requirements and regulatory guidance such as FFIEC 2010-1A IRR and its associated FAQ’s, NCUA 12 CFR Part 741 and 12-CU-11, and OCC Bulletin 2011-12/FRB SR Letter 11-7OCC. They provide the high confidence level that only a truly independent review, produced by experienced ALM model users and financial management experts, can bring.

With this MPS service, your institution is empowered to:

  • Meet current regulatory mandates relating to verifying and validating an ALM model
  • Precisely manage total balance sheet risk and return for higher current performance
  • Accurately measure interest rate risk (IRR), with least loss in current performance
  • Better understand the behavior of all assets and liabilities, including those with options
  • Enhance and optimize ALM processes, IRR limits and ALCO policies
  • Benefit from the insights of an experienced and seasoned ALM model assessment team
  • Understand the workings of your ALM model better and more fully utilize it in ALCO

MPS ALM Model Verification Reports

MPS offers three standard reports, each with optional components that meet unique client needs.

MPS Comprehensive ALM Model Verification Report
This report examines every facet of your institution’s ALM model and its model governance and is the strongest solution possible for meeting business and regulatory needs.  It provides a comprehensive review of the model control environment, detailed technical verification of all model specifications, and multiple validations of model forecast accuracy.  An assessment of the model’s fit as your institution’s ALM tool, and a review of the adequacy of ALCO, ALM policies and IRR limits and other components of model governance are also delivered.  A formal model ranking relative to peer model implementations is included with detailed recommendations for model and ALM process enhancements.  Industry standard and best practice listings provide added perspective and guidance. 

MPS Technical ALM Model Verification Report
This report focuses on verifying and validating the technical aspects of your ALM model, such as basic data, category definitions, contractual inputs, behavioral assumptions, and outputs.  The quality of technical specifications and level of model accuracy are ranked absolutely and relatively to similar model implementations recently assesed by MPS.  Recommendations are prioritized by level of importance, with industry standard and best practices for each model element reviewed. 

MPS ALM Model Risk Assessment Report
This report fulfills a narrow regulatory mandate to assess embedded model risk, defined as the level of potential biases in model forecast accuracy that could lead to incorrect decision making by financial managers.  Potential risk sources are evaluated, including current position quality, option related risk inputs, core deposit treatments, category set up definitions, present value specifications, and other relevant model areas.   Color coded icons identify key model risk sources and areas of secondary concerns.

Optional Components
MPS can provide model back tests, source data audits, consulting to enhance ALCO policies and processes, and other custom deliverables with most reports. 

MPS has solutions for quantifying core deposit behavior and value inputs, defining loan prepayments and paydowns, non-linear rate ramps, and other model input needs.

Verification of other financial models, such as portfolio analytics and derivatives models, mortgage pipeline and mortgage servicing rights (MSR), liquidity, and prepayment software, are available.