Asset and Liability Management

As part of our discussion on the money markets, we will consider in this chapter a major part of banking activity, and one that is closely related to the main business of banking, which is the subject of asset and liability management. The art of asset and liability management (ALM) is essentially one of risk management and capital management, and although the day-to-day activities are run at the desk level, overall direction is given at the highest level of a banking institution. The risk exposure in a banking environment is multi-dimensional, for example they encompass interest-rate risk, liquidity risk, credit risk and operational risk. Interest-rate risk is one type of market risk. Risks associated with moves ...

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