Asset Liability Management Optimisation

An advanced method for financial institutions to optimise Asset Liability Management for maximised return and minimised risk

Financial institutions today are facing daunting regulatory and economic challenges. As they manage bank regulation and competition, institutions are also optimising their Asset Liability Management (ALM) operations. The function of the ALM unit today goes beyond risk management related to the banking book into managing regulatory capital and positioning the balance sheet to maximise profit. Asset Liability Management Optimisation: A Practitioner's Guide to Balance Sheet Management and Remodelling offers a step-by-step process for modelling and reshaping a bank's balance sheet. Based on the author's extensive research, it describes how to apply a quantifiable optimisation method to help maximise asset return and minimise funding cost in the banking book.

ALM ranks as a key component of any financial institution's overall operating strategy. Now, financial professionals can use an advanced solution for optimising ALM. This book takes a closer look at the evolving role of the ALM function and the target position of the banking book. It provides strategies for active management, structuring, and hedging of a bank balance sheet, while also exploring additional topics related to ALM.

• A description of the Funds Transfer Pricing (FTP) process related to a bank’s target position
• Detailed examinations of interest rate risk in the banking book (IRRBB)
• Discussion of Basel III regulatory requirements and maturity gap analysis
• Overview of customer behaviour, along with its impact on interest rate and liquidity risk
• Practical spreadsheet models (NII sensitivity and EVE volatility IRRBB model, simplified optimisation model for minimisation of average funding cost for a bank and an example of behavioural model for Non-Maturing Deposits)
• Explorations of model risk, sensitivity analysis, and case studies

The optimisation techniques found in Asset Liability Management Optimisation can prove vital to financial professionals who are tasked with maximising asset return and reducing funding costs as a critical part of business objectives.