Westport Geek

A Financial Technologist's Blog

Asset Liability Management

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The scope of ALM activities has widened. Today, ALM departments are addressing (non-trading) foreign exchange risks and other risks. Also, ALM has extended to non-financial firms. Corporations have adopted techniques of ALM to address interest-rate exposures, liquidity risk and foreign exchange risk.

The problem was not that the value of assets might fall or that the value of liabilities might rise. It was that capital might be depleted by narrowing of the difference between assets and liabilities. (see diagram below)

Besides ALM, securitization also allows firms to directly address asset-liability risk by removing assets or liabilities from their balance sheets. This not only eliminates asset-liability risk; it also frees up the balance sheet for new business.

On RiskGrossary.com

ALM on Wiki

ALM in Private Wealth Management

ALMProfessional.com

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Written by walkinggeek

May 26, 2010 at 10:45 am

Posted in ALM, Investment

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