Asset –Liability Management Techniques

What do you mean by Asset Liability Management (ALM) ?

Asset-liability Management is the Control of a bank’s sensitivity to

changes in market interest rates to limit losses in its net income or equity
management. The techniques of asset-* liability management provide the
bank with the defensive weapons to handle nosiness cycles and seasonal
pressures on its deposits and loans and with the offensive weapons to
construct portfolios of assets that promote the bank’s goals.
The purpose of asset-liability management is to formulate strategies and
take action that shape a bank’s balance sheet and protect the value of its
assets, equity, and net income in way that contributes to the bank’s desired
goals. Usually, the principal goals of asset- liability management are: (a) to
maximize ,or at least stabilize, the bank’s margin , or spread between interest
revenues and interest expenses, and (b) to maximize, or at least protect, the
value (stock price ) of the bank , at an acceptable level of risk.

What are the Asset Liability Management Strategies? Discuss in brief.

Asset Management Strategy: Control of the composition of a bank’s assets

to provide adequate liquidity and earnings and meet other goals.

Liability Management Strategy: control over bank’s liabilities (usually

through changes in interest rates offered) to provide the bank with adequate
liquidity and meet other goals.

The science of assert-liability management is one of the most useful

analytical tools developed in modern banking. Bankers recognize this
rowing body of knowledge, usually referred to simply as ALM, as consisting
of a series of management tools to help bankers reduce their institutions risk
exposure (particularly their susceptibility to loss from changing market
interest rates).