Business Area

Risk Management

Financial Risk Management Solution

RISK Solution > Fermat

Fermat is a leading provider of integrated risk and performance management software solutions to the global banking industry.

Fermat ALM, an integrated solution for comprehensive balance sheet risk management for the banking book. This solution offers built-in static and dynamic simulation capabilities to help ALM professionals improvtheir efficiency, enhance performance and obtain a more accurate and consistent view of balance sheet risk.

Fermat ALM provides essential monitoring of balance-sheet risks for the banking book. Covering a wide range of financial products, Fermat ALM offers built-in static and dynamic simulation capabilities to help ALM professionals define more efficient risk-return tradeoffs and comply with regulatory requirements.

The evolving economic landscape presents huge challenges for asset and liability management. Recent financial turmoil has placed greater emphasis on liquidity management with tighter regulations and reporting requirements. Common data and indicators used by asset and liability managers need to be quickly shared with risk departments for sophisticated client behavior modeling and balance-sheet amortizing assumptions. At the same time, asset and liability managers need to focus on interest rate risk management with increasing demand for more dynamic simulations and a better understanding of the sources of profitability through Funds Transfer Pricing (FTP). Treasury and risk managers and ALM Committees (ALCO’s) need a robust and comprehensive balance sheet management solution to meet these evolving needs.

The Solution: Enhance Strategic Decision Making and Improve Financial Performance

Consolidate Risk Data

Accurate and consistent data consolidation is critical to achieving sound asset and liability management. At the core of our solution is the Fermat Datamart — a robust data warehouse enabling multi-user and multi-geographical site connection to a single platform, streamlining simulation and reporting techniques across all legal entities and business units. Its comprehensive data-handling capabilities offer financial institutions a cost-effective, integrated solution that helps improve data quality.

Monitor Risks and Improve Performance

Fermat ALM offers robust and flexible scenario analytics allowing you to monitor interest-rate risk covering client behavior modeling, new business and stochastic scenarios. The robust stress testing engine allows you to manage your liquidity by calculating the liquidity gap. You can also calculate the maturing and non-maturing instruments on your balance sheet through the Funds Transfer Pricing (FTP) module, giving you a clearer understanding of the organizations sources of profitability.

Deliver Comprehensive Risk Management Reports

Fermat ALM manages all of your management reporting needs by delivering fully-customized reports including gap reports, cashflow reports, funds transfer pricing reports, balance sheet and income statements, Earnings at Risk (EaR), Value at Risk (VaR) and EVE (Economic Value of Equity) reports and many more. ALM managers can quickly and easily add new variables to these reports, modify displayed values and save them for future use. Our award-winning Regulatory Reporting Tool (Fermat RRT) allows you to leverage our regulatory reporting expertise to meet local liquidity and balance sheet regulations.

Key Features

Interest Rate Risk

Gain a dual vision of interest rate risk through income sensitivity measurements—covering interest rate gaps, dynamic modeling and stochastic simulations—and comprehensive balance sheet value sensitivity.

Liquidity Risk

Monitor your daily risk positions through cash flow gaps and maximum cumulative outflow measurements. The robust stress testing engine allows you to statically and dynamically simulate systemic and specific events through flexible stress testing

Foreign Exchange Risk

Analyze currency changes on a range of indicators using our comprehensive currency scenarios.

Client Behavior Modeling

Model deposits and savings using a replicating portfolio approach (helping you define the strategy that minimizes the net interest income sensitivity to interest rate movements) and loan prepayment and renegotiation.

New Business Scenarios

Produce budgetary and customer scenarios defined by type of contract.

Stochastic Scenarios

Produce short rate models and FX rate simulations and measure the correlation between the various risk factors.

Funds Transfer Pricing

Integrated FTP functionality for the whole balance sheet or to complement an existing FTP system.

Regulatory Compliance

Meet local liquidity and interest rate regulatory requirements with a complete audit from the original exposures to the final regulatory reports.

Extensive Instrument Coverage

Includes a wide range of on- and off- balance sheet instruments which can be extended through the use of proprietary or third-party systems.

RISK Solution > Risk Authority / Risk Confidence

Moody's Analytics offers a powerful combination Asset and Liability Management (ALM) Solution that integrates enterprise ALM, liquidity risk management, funds transfer pricing, and regulatory reporting capabilities into a seamless enterprise platform. Moody's Analytics ALM Solution delivers comprehensive asset and liability management, encompassing interest rate risk management, liquidity risk management, funds transfer pricing (FTP), multi-factor behavior modeling, and balance sheet management capabilities. The solution leverages data from Moody's Analytics data management platform, allowing banks to manage their ALM and liquidity alongside their risk management and regulatory compliance work for Basel III, IFRS 9, and stress testing.

Integrate ALM into business management

The powerful capabilities of the solution enable ALM to be fully integrated into the management of the business. FTP capabilities allow banks to apply a single, consistent cost of capital across the business. This allows senior management to optimize the distribution of capital across the business to meet strategic objectives. The cash flow capabilities can be used to calculate the liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) to help deliver efficient regulatory compliance and business management.

Pillar 1: Calculate New Basel III Capital, Liquidity and Leverage Ratios

  • Consolidate and store all Basel I, II and/or III required data, including assets, liabilities, off-balance sheet exposures, counterparties, ratings, risk drivers and market data, on one central platform
  • Calculate the new Basel III credit risk capital requirements in the standardized or Internal Ratings Based (IRB) approaches including the new capital charge for Credit Valua tion Adjustments (CVA)
  • Compute market risk and operational capital charge using standardized approaches
  • Calculate all required information for the new Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) including liquidity buffer eligibility rules and haircuts
  • Consolidate leverage, capital (including the new conservation and countercyclical buffers) and liquidity ratios per booking entity or currency
  • Monitor large exposures, concentration risk and funding concentration per customer, products, country and currency
  • Leverage an EL based approach to assess provisions, complying with IFRS 9 impairments rules
  • Manage diverse national discretions and local regulatory reporting requirements

Pillar 2: Improve Risk Management Processes

  • Perform liquidity stress testing for internal funding needs assessment for ILAAP
  • Assess economic capital for ICAAP using Moody’s Analytics RiskFrontier™
  • Run holistic scenarios, including rating downgrades and security value decrease, impacting all Basel III ratios
  • Stress risk drivers and market data, including ratings, PD, LGD, CCFs, haircuts, run-off, sell-off, FX rates and yield curves
  • Define forward looking scenarios based on business forecast assumptions and macro economic factors
  • Simulate forthcoming regulatory changes to ease impact assessments

Pillar 3: Improve Risk Disclosure

  • Streamline and automate the production of Pillar 1 regulatory capital, concentration risk and liquidity reports and submit in local supervisor’s preferred languages and formats (MS Excel, XBRL and/or XML)
  • Generate customized Pillar 3 market and stakeholder reports Manage ongoing regulatory updates
  • Enhance Board and Executive Management reporting with customizable and user-friendly dashboard reporting tools