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Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition by Youssef F. Bissada, Jean Dermine

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The control of profit and value creation

There are just a few key concepts or building blocks to keep in mind. At the overall bank level, senior management needs to ensure that:

Market value of shares > equity invested by shareholders

Technically, this demands that the long-term return on equity exceeds the cost of equity:

Return on equity (ROE) > cost of equity (COE)

where the cost of equity represents the expected return that shareholders could obtain from alternative investment opportunities.

At profit centre level, a measure of performance ...

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