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Risk Management for Changing Interest Rates Asset-Liability Management

Risk Management for Changing Interest Rates Asset-Liability Management

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Published by Mahmudur Rahman

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Published by: Mahmudur Rahman on Aug 26, 2012
Copyright:Attribution Non-commercial

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05/24/2013

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Chapter Seven
Risk Management for ChangingInterest Rates: Asset-LiabilityManagement
Copyright
 
© 2010 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
 
 McGraw-Hill/IrwinBank Management and Financial Services, 7/e© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
 
The purpose of this chapter is to explore theoptions bank/FIs have today for dealing withrisk
 –
 
Especially the risk of loss due tochanging interest rates
To see how management can coordinate themanagement of its assets with themanagement of its liabilities
Objective
 
 McGraw-Hill/IrwinBank Management and Financial Services, 7/e© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
 
Evolution of Fund Management Strategies
Asset Management
Baking's history prior to the 1960s, bankers tended totake their sources of funds
liabilities and equity
 largely for granted
Key decision area of bank management was not
deposits and other borrowings but assets
>Sources of funds>liabilities and equity
 –
largely for granted
>Public determined the amount of deposit>the rate and type were regulated
>Banker could exercise control over assets>loan
Liability Management
The 1960 and 1970 ushered in dramatic changes in
bank management strategies;
Confronted with soaring interest rates and intensecompetition for funds, bankers began to devote greaterattention to sources of funding and cost of their
deposit and non-deposit liabilities - called liability
management
 

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