Asset and liability management (often abbreviatedALM) is the term covering tools and techniques used by abank or other corporate to minimise exposure tomarket risk andliquidity risk through holding the optimum combination of assets and liabilities.^[1]It sometimes refers more specifically to the practice of managingfinancial risks that arise due to mismatches - "duration gaps" - between theassets andliabilities, on the firm'sbalance sheet or as part of aninvestment strategy.

ALM sits betweenrisk management andstrategic planning. It is focused on a long-term perspective rather than mitigating immediate risks; see, here,treasury management.The exact roles and perimeter around ALM can however vary significantly from one bank (or otherfinancial institution) to another depending on the business model adopted and can encompass a broad area of risks.

Traditional ALM programs focus oninterest rate risk andliquidity risk because they represent the most prominent risks affecting the organization.Its scope, though, includes the allocation and management of assets, equity, interest rate andcredit risk management including risk overlays, and the calibration of company-wide tools within these risk frameworks for optimisation and management in the local regulatory and capital environment.Often an ALM approach passively matches assets against liabilities (fully hedged) and leaves surplus to be actively managed.

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• Financial risk management § Corporate finance
• Treasury management
• Liquidity risk
• Interest rate risk
• Liquidity at risk
• Earnings at risk
• Cash flow at risk
• Duration gap

Cited

Bibliography

• Crockford, Neil (1986).An Introduction to Risk Management (2nd ed.). Woodhead-Faulkner. 0-85941-332-2.
• Van Deventer, Imai and Mesler (2004), chapter 2
• Moorad Choudhry (2007).Bank Asset and Liability Management - Strategy, Trading, Analysis. Wiley Finance.

• Society of Actuaries Professional Actuarial Specialty Guide describing Asset Liability Management
• Asset-Liability Management by riskglossary.com
• Asset - Liability Management System in banks - GuidelinesReserve Bank of India
• Asset-liability Management: Issues and trends, R. Vaidyanathan, ASCI Journal of Management 29(1). 39-48
• Price Waterhouse Coopers Status of balance sheet management practices among international banks 2009
• Bank for International Settlements Principles for the management and supervision of interest rate risk - final document
• Bank for International Settlements Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools