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Asset and Liability Management - Wikipedia
Asset and Liability Management - Wikipedia
Asset and Liability Management - Wikipedia
management
History
Asset and liability management practices were
initially pioneered by financial institutions
during the 1970s as interest rates became
increasingly volatile.
ALM governance
Legislative summary
ALM concepts
Building an ALM policy
Illustrative example of a balance sheet mix limits
mechanism
Managing gaps
Actions to perform
Remediation actions
Ratio of Quick ratio Adjustement of the current ratio to Current assets (-stock) /
liquidity (acid test eliminate no-cash equivalent assets current liabilities
ratio)
(inventory) and indicate the size of the
buffer of cash
Loans + advances to
Simplified indication on the extent to which a
Loans to customer net of allowance
Financial bank is funding liquid assets by stable
deposit for impairment losses (-
strength liabilities. A level of 85 to 95% indicating correct
ratio reverse repo) / customer
level.
deposit (-repo)
Setting limits
Setting risk limits still remain a key control tool in
managing liquidity as they provide :
Funding management
As an echo to the deficit of funds resulting from
gaps between assets and liabilities the bank
has also to address its funding requirement
through an effective, robust and stable
funding model.
Retail funding
Deposit account
Transaction accounts
Savings accounts
Public deposit Current
account
Wholesale funding
Borrowing funds under secured and
unsecured debt obligations (volatile and
subordinated liabilities that are
purchased by rate sensitive investors)
Short-term :
High-grade securities
(otherwise the counterparty or
broker/ dealer will not accept the
collateral or charge high haicut
on collateral) sold under
repurchase agreement : repo
transaction that helps create
leverage and short-term
liabilities collateralised with
longer maturity assets
Debt instruments such as
commercial paper (promissory
note such as Asset-backed
commercial paper program or
ABCP)
Longer terms : collateralized loans and
issuance of debt securities such as
straight or covered bonds
Other form of deposit
Certificate of deposit
Money market deposit
Brokered deposit (in the US banking
industry)
Parent company deposit
Deposit from banks
Support from legacy governments and
central bank facilities.Such as Long Term
Refinancing Operations (LTRO) in the
Eurozone where the ECB provides
financing to Eurozone banks (on 29
February 2012, the last LTRO has
contained €529,5 billion 36-months
maturity low-interest loans with 800 banks
participants)
Common stock
Preferred stock
Retained earnings
Main characteristics :
External events :
ALM report
See also
Treasury management
Liquidity risk Interest
rate risk
References
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.
External links
Society of Actuaries Professional
Actuarial Specialty Guide describing
Asset Liability Management
Asset-Liability Management by
riskglossary.com
Asset Liability Management in Risk
Framework by CoolAvenues.com
Asset - Liability Management System in
banks - Guidelines Reserve Bank of
India
Asset-liability Management: Issues and
trends , R. Vaidyanathan, ASCI Journal of
Management 29(1). 39-48
Price Waterhouse Coopers Status of
balance sheet management practices
among international banks 2009
Bank for International Settlements
Principles for the management and
supervision of interest rate risk - final
document
Bank for International Settlements Basel III:
The Liquidity Coverage Ratio and liquidity
risk monitoring tools
Financial Stability Board: Global Shadow
Banking Monitoring Report 2012
Deloitte Global Risk management survey
Eighth Edition July 2013 on the latest
trends for managing risks in the global
financial services industry
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