Practices and Emerging Trends in Asset Liability Management and Liquidity Risk
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Overview: Asset Liability Management (ALM) plays a critical role in weaving together the different business lines in a financial institution. Managing liquidity and the balance sheet are crucial to the existence of a financial institution and sustenance of its operations. It is also essential for seamless growth of the balance sheet in a profitable way.
In recent times, even large multinational financial institutions were in a deep liquidity crisis and in dire need of external intervention for survival. The practical importance of ALM and Liquidity Management had seen somewhat underestimated. Even managements of large institutions, regulators, and observers saw how well-reputed firms and trusted institutions folded up and were not able to find a way out of the deep liquidity crisis. This resulted in regulators attaching high importance to new measures needed to ensure a sound liquidity management system. Consequently, regulators have enhanced and in some geographies, thoroughly revamped, regulatory oversight on ALM and liquidity management.