6.1.5.3 Autobalancing in MDBSS

Overview

Autobalancing is a feature within the ALM Dynamic Deterministic Process (DDP) that serves as a balance plug to maintain the integrity of the projected balance sheet. Its primary function is to ensure that forecasted projections satisfy the fundamental accounting equation:

Total Assets = Total Liabilities + Shareholders' Equity

This functionality long supported in the ALM On-Premises solution and continues to be available and enhanced in the ALM Cloud Services offering.

Purpose of Autobalancing

The Autobalancing feature is designed to replicate the financial adjustments that typically occur during the lifecycle of a balance sheet, ensuring the projected financials remain balanced and realistic. During forecast simulations, discrepancies may arise between assets and liabilities due to model assumptions, maturity mismatches, or cash flow timing. Autobalancing automatically applies corrective measures to maintain accounting equilibrium.

The functionality simulates and adjusts for a variety of balance sheet activities, including:

• Unrealized Currency Gains/Losses: Automatically accumulates unrealized foreign exchange gains or losses into the Equity section, reflecting currency valuation changes over time.
• Overnight Funding Adjustments: Simulates the purchase of overnight funds when cash shortfalls are detected, or the investment of surplus cash through the sale of overnight instruments to optimize liquidity.
• Net Income Allocation: Rolls forward net income from the income statement into Retained Earnings, capturing the effect of profit accumulation on the equity structure.
• Dividend Payments: Accounts for dividends declared and paid, reducing retained earnings accordingly to reflect shareholder distributions.
• Tax Payments: Simulates federal and state tax liabilities, reducing net income to reflect anticipated tax outflows during the forecast period.
• Realized gains/losses: adjust the equity portion by reflecting actual profit or loss from static ALM data, ensuring continuity between historical and forecasted balance sheets.

By automating these adjustments, Autobalancing helps ensure that the forecasted balance sheet is not only technically balanced but also reflects practical financial behavior under varying scenarios.

Process Types

Autobalancing is supported exclusively for the MDBSS (Multi-Dimensional Balance Sheet Structure) dimension within Dynamic Deterministic Process (DDP) execution. It applies to the following output types:

• Scenario-based MDBSS outputs
• Consolidated scenario outputs for MDBSS
• Earnings-at-Risk (EaR) results

Each of these process types leverages Autobalancing to maintain the integrity of forecasted financial statements, ensuring they remain accurate, complete, and in line with standard accounting principles.

Creation of Autobalancing leaves under Reference Data -- Multi-Dimensional Balance Sheet

As a prerequisite step we need to create Autobalancing Leaves under Reference Data -- Multi-Dimensional Balance Sheet thereafter which will be available in the Multi-Dimensional Balance Sheet Structure Summary for required Autobalance leaves to config as part of Dynamic Deterministic ALM process.

Note: All MDBSS members mapped for use in Autobalancing must have the correct account type attribute (via MDBSS) and all components must be mapped for the process to run. Also note, that each Autobalancing element should have a unique dimension member assignment as per below mentioned screen print.

Viewing Autobalancing Assignments

To view autobalancing on Multi-Dimensional Balance Sheet, follow these steps:

1. Navigate to the Reference Data and select Multi Dimensional Balance Sheet.
2. Search for a Rule.
3. Click on the action icon against the required Multi Dimensional Balance Sheet Name and select Autobal Assignment. The Autobalancing Leaves Assignment window displays the Type of Leaf along with mapped Node ID and Leaf Description.

   Figure 6-29 Autobalancing Assignments

   
   

   

   
   

   Below is the list of auto balancing leaves:

   Asset

   Liability

   Retained Earnings

   Dividends

   Federal Taxes

   State Taxes

Note:

Here, Product characteristics of the parent node are used if definition of Autobalancing leaf (asset, liability) is not found.