Asset and liability management

In today's article we are going to talk about Asset and liability management, a topic that has gained great relevance in recent years. Asset and liability management is a topic that has aroused the interest of experts and people of all ages, since its impact extends to various areas of society. Throughout this article, we will explore different aspects related to Asset and liability management, analyzing its history, its influence today and possible future prospects. Furthermore, we will try to offer a global vision that allows the reader to understand the importance of this topic in today's society.

Asset and liability management (often abbreviated ALM) is the term covering tools and techniques used by a bank or other corporate to minimise exposure to market risk and liquidity risk through holding the optimum combination of assets and liabilities.[1] It sometimes refers more specifically to the practice of managing financial risks that arise due to mismatches - "duration gaps" - between the assets and liabilities, on the firm's balance sheet or as part of an investment strategy.

ALM sits between risk management and strategic planning. It is focused on a long-term perspective rather than mitigating immediate risks; see, here, treasury management. The exact roles and perimeter around ALM can however vary significantly from one bank (or other financial institution) to another depending on the business model adopted and can encompass a broad area of risks.

Traditional ALM programs focus on interest rate risk and liquidity risk because they represent the most prominent risks affecting the organization. Its scope, though, includes the allocation and management of assets, equity, interest rate and credit risk management including risk overlays, and the calibration of company-wide tools within these risk frameworks for optimisation and management in the local regulatory and capital environment. Often an ALM approach passively matches assets against liabilities (fully hedged) and leaves surplus to be actively managed.

See also

References

Cited

  1. ^ "Asset-Liability Management - an overview | ScienceDirect Topics". www.sciencedirect.com. Retrieved 2023-04-05.

Bibliography

  • Crockford, Neil (1986). An Introduction to Risk Management (2nd ed.). Woodhead-Faulkner. 0-85941-332-2.
  • Van Deventer, Imai and Mesler (2004), chapter 2
  • Moorad Choudhry (2007). Bank Asset and Liability Management - Strategy, Trading, Analysis. Wiley Finance.