What is Asset Liability Management in Banking?

A bank is a financial intermediary that collects funds from depositors and lends the funds to others at a higher rate than it pays to depositors (this is the net interest margin).
Historically, you could calculate a bank’s profit as follows:
interest earned from borrowers - interest paid to depositors = bank profit
To increase profit, banks focused on funding their activities at the lowest possible cost.
But the banking industry has changed significantly.
Loans used to account for nearly all of a bank’s revenue; today, banks generate additional income from investments in securities, speculation with derivatives, and other sources. While deposits used to be the primary source of funds, banks now obtain funds with short- and long-term borrowing, securitizations, and collateralized borrowings.
These changes brought new types of risk. Unfortunately, many banks failed to manage these risks, and some banks became insolvent or required a bailout during the 2008 financial crisis. The banking industry has evolved, however, and banks now manage these risks with asset-liability management (ALM).
ALM is the process of matching assets and liabilities to manage risk; specifically, to protect against adverse changes to the bank’s profit, firm value, and liquidity.
Banks carry out ALM by optimizing the following gaps:
• The earning gap
• The duration gap
• The cash flow gap
• The liquidity gap
-
Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education freely available to the world.
-
SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS:
• A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING
• A 44-PAGE GUIDE TO U.S. TAXATION
• A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS
• MANY MORE FREE PDF GUIDES AND SPREADSHEETS
* eepurl.com/dIaa5z
-
SUPPORT EDSPIRA ON PATREON
* / prof_mclaughlin
-
GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT
* edspira.thinki...
-
LISTEN TO THE SCHEME PODCAST
* Apple Podcasts: podcasts.apple...
* Spotify: open.spotify.c...
* Website: www.edspira.co...
-
GET TAX TIPS ON TIKTOK
* / prof_mclaughlin
-
ACCESS INDEX OF VIDEOS
* www.edspira.co...
-
CONNECT WITH EDSPIRA
* Facebook: / edspira
* Instagram: / edspiradotcom
* LinkedIn: / edspira
-
CONNECT WITH MICHAEL
* Twitter: / prof_mclaughlin
* LinkedIn: / prof-michael-mclaughlin
-
ABOUT EDSPIRA AND ITS CREATOR
* www.edspira.co...
* michaelmclaugh...

[@jax9466]

I have an interview at a credit union for an asset liability position, I am stoked for it as it is exactly the type of work I have been looking for

[@Edspira]

I hope you get the job, good luck!

[@jax9466]

@Joe Its a company in central Ohio called corporate One Federal Credit Union. I currently work in Credit Risk at a bank but transitioning into asset liability management and investment advisory. You just gotta get your foot in the door, even if it’s a lower salary for the first year or two then work your way up

[@jax9466]

@Joe SQL and data analysis are beckon more and more needed in the finance and accounting profession. There are cheap and affordable online courses through Coursera and LinkedIn learning I would recommend. For my ALM job they did not say I would be using SQL, just excel

[@this_is_steve]

​@Jax the growth of Business Intelligence roles is shifting those advanced data skills like SQL from Financial Analyst roles to BI Analyst roles. Not all orgs are there yet but BI is being adopted pretty well at smaller Financial institutions with how important data has become and for advanced technology has become. All depends on each institution but certainly very usable skills regardless.

[@tonymudau3005]

Nice presentation!

[@user-sn2gf8ne2i]

Sir, Do banks have Working Capital? How does the concept of Working Capital Management apply to a bank?

[@VividFlash]

Thank you!

[@Edspira]

You're welcome!

[@jameshenry4975]

nice work

[@smartbloonie]

Nice and simple

[@pushpak2007]

Listen at 1.25 x speed and it sounds better 😂

[@IvanVesely920]

Banks don't lend deposits. This is known.

[@himanshisingla1031]

Yes! Banks create money!

[@this_is_steve]

This could not be more wrong. Fun talking point from people that don't understand the industry at all.

[@psyrenea]

Could you please explain ? They create money ? @@this_is_steve