ALM Validation

Why Validate an ALM Report?

ALM First Analytics believes institutions need to continuously tune and improve model performance to get a clear and accurate picture of how interest rates impact today’s decisions and positioning for tomorrow. Model validations are part of a comprehensive ALM program that allows management, ALCO, Boards of Directors, and regulators to maintain confidence in their modeling, forecasting, and projected risk position. Finely tuned models are critical to sound decision making, understanding interest-rate risk, and improving earnings.

Choosing ALM First Analytics

  • Leverage our models: We use one of the most technologically advanced analytical models to perform an independent assessment of your financial institutions interest-rate risk.
  • Unbiased expertise: Our unbiased, third-party assessment, and our necessary side-by-side model comparisons, can provide the needed suggestions for areas of improvement, best practices, and regulatory guidance.
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Validation Opportunities with ALM First Analytics

ALM First Analytics’ asset liability management validation service provides an unbiased, third-party assessment of a depository institution’s IRR process, model, and reports. We use regulatory guidance to ensure our service offerings meet FFIEC, NCUA, OCC, FDIC and FRB directives.

Our different Validation services meet the specific needs of your institution:

ALM Parallel Analysis

This service encompasses an independent interest-rate risk assessment utilizing your data along with the ALM First Analytics model and assumption set. Results are then compared to those of your institution with the differences highlighted and explained. Because accurate and institution-dependent assumptions are critical to reasonable results, ALM First Analytics also includes a Non-Maturity Deposit analysis as part of the service.

ALM Process Review

A process review is used to fine tune the model, ensure the model is appropriate for the size and complexity of the institution, and shed light on areas of improvement, best practices, and regulatory guidance. Moreover, the process review addresses the following four components of the ALM process as outlined in the OCC Bulletin on “Model Validation”:

  • Modeling inputs, assumptions, data, and methodologies
  • Strengths and weaknesses of the ALM model
  • Content and format of reports
  • Documentation and controls related to the ALM process

Full Validation

ALM First Analytics also offers a Full Validation, combining the Parallel Analysis and Process Review.  Because all institutions do not have the same goals, the validation can be customized to the needs of your institution.

Our unbiased, third-party assessment, and our necessary side-by-side model comparisons, can provide the needed suggestions for areas of improvement, best practices, and regulatory guidance.


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How often does an institution need to have an ALM validation performed?

The need and extent of model validations depend on the size and the complexity of the depository’s balance sheet. Typically, a depository needs a Validation performed every-other year. Other institutions alternate having a Parallel Analysis or a Process Review performed each year. Each institution should ensure it satisfies regulatory and internal requirements.

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Which level of service should an insitution use?

An institution should have a general understanding of its goals with an ALM Validation. The validation should at least satisfy the regulatory requirement by ensuring model results depict an accurate assessment of institutional interest-rate risk. Other institutions desire to improve the accuracy and level of detail within the model to better use ALM modeling to inform strategic decisions. By evaluating the current model and assumption set, an institution can move toward implementation of industry best practice, beyond what may be required by regulation. When resources are available, elements of the ALM model can be fine-tuned in order to best utilize the model and improve insight into risk positions.

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What data are required for an accurate validation?

The value of a validation is dependent upon the accuracy and completeness of the data. A successful validation requires full data sets – loan level information, specific CUSIPs and CDs, and historical NMD data, among other components. ALM First will provide a data checklist to begin the process and continually provide updates on our status and any outstanding requests.

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What is the timeframe for a full validation?

ALM First expects to complete validations within six weeks. However, the timeframe of this process can require more (or less) time, depending on the availability and completeness of the data that are provided.

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What does a validation provide?

Upon completion of the validation, ALM First provides a full balance sheet evaluation and details of its assumptions and approach, alongside parallel analyses that highlight the main components of the models’ leading to differences in results. ALM First also assesses the model structure and assumptions currently in use.

 All investing is subject to risk, including the possible loss of the money you invest.

“ALM First” is a brand name for a financial services business conducted by ALM First Group, LLC (“ALM First”) through its wholly owned subsidiaries: ALM First Financial Advisors, LLC (“ALM First Financial Advisors”); ALM First Advisors, LLC (“ALM First Advisors”); and ALM First Analytics, LLC (“ALM First Analytics”).  Investment advisory services are offered through ALM First Financial Advisors, an SEC registered investment adviser with a fiduciary duty that requires it to act in the best interests of clients and to place the interests of clients before its own; however, registration as an investment advisor does not imply any level of skill or training.  Moreover, ALM First Financial Advisors, LLC (“ALM First Financial Advisors”), an affiliate of ALM First Group, LLC (“ALM First”), is a separate entity and all investment decisions are made independently by the asset managers at ALM First Financial Advisors. Access to ALM First Financial Advisors is only available to clients pursuant to an Investment Advisory Agreement and acceptance of ALM First Financial Advisors’ Brochure. You are encouraged to read these documents carefully. Balance sheet advisory services are offered through ALM First Advisors.  Financial reporting services, loan introduction services, and other special project services are offered through ALM First Analytics.  Neither ALM First nor any of its subsidiaries provide legal, tax, or accounting advice. This firm is not a CPA Firm.