RMK MANAJEMEN PERBANKAN

CHAPTER 7: Risk Management for Changing Interest Rates: Asset-Liability

Management and Duration Techniques
Dosen Pengampu: Yohana Tamara, S.E., M.M.

Disusun oleh:

Nama: Elita Putri Ayu Nur Makrufah

NIM : F0220043

Kelas : Manajemen Perbankan E

PROGRAM STUDI S-1 MANAJEMEN

FAKULTAS EKONOMI DAN BISNIS

UNIVERSITAS SEBELAS MARET

2023
Financial institutions today are often highly complex organizations, offering multiple
financial services through multiple departments, each staffed by specialists in making
different kinds of decisions.1 Thus, different groups of individuals inside each modem
financial firm usually make the decisions about which customers are to receive credit, which
securities should be added to or subtracted from the institution's portfolio, which terms
should be offered to the public for loans, investment advice, and other services, and which
sources of funding the institution should draw upon. This type of coordinated and integrated
decision making is known as asset-liability management (ALM).
Forces Determining Interest Rates
The problem with interest rates is that although they are critical to most financial institutions,
the managers of these firms simply cannot control either the level of or the trend in market
rates of interest. The rate of interest on any particular loan or security is ultimately
determined by the financial marketplace where suppliers of loanable funds (credit) interact
with demanders of loanable funds (credit) and the interest rate (price of credit) tends to settle
at the point where the quantities of loanable funds demanded and supplied are equal.
Responses to Interest Rate Risk. Asset-Liability Committee (ALCO)
In recent decades managers of financial institutions have aggressively sought ways to insulate
their asset and liability portfolios and their profits from the ravages of changing interest rates.
For example, many banks now conduct their asset-liability management strategies under the
guidance of an asset-liability committee, or ALCO.
Interest-Sensitive Gap Management as a Risk-Management Tool
Among the most popular interest rate hedging strategies in use today is interest-sensitive
gap management. Gap management techniques require management to perform an analysis
of the maturities and repricing opportunities associated with interest-bearing assets and with
interest-bearing liabilities. If management feels its institution is excessively exposed.
The foregoing example reminds us that the net interest margin of a financial-service provider
is influenced by multiple factors:
1. Changes in the level of interest rates, up or down.
2. Changes in the spread between asset yields and liability costs ( often reflected in the
changing shape of the yield curve between long-term rates and short-term rates).
3. Changes in the volume of interest-bearing (earning) assets a financial institution holds
as it expands or shrinks the overall scale of its activities.
4. Changes in the volume of interest-bearing liabilities that are used to fund earning
assets as a financial institution grows or shrinks in size.
 5. Changes in the mix of assets and liabilities that management draws upon as it shifts
between floating and fixed-rate assets and liabilities, between shorter and longer
maturity assets and liabilities, and between assets bearing higher versus lower
expected yields ( e.g., a shift from less cash to more loans or from higher-yielding
consumer and real estate loans to lower-yielding commercial loans).
Problems with Interest-Sensitive GAP Management
While interest-sensitive gap management works beautifully in theory, practical problems in
its implementation always leave financial institutions with at least some interest-rate risk
exposure. For example, interest rates paid on liabilities (which often are predominantly short
term) tend to move faster than interest rates earned on assets (many of which are long term).
Then, too, changes in interest rates attached to assets and liabilities do not necessarily move
at the same speed as do interest rates in the open market. In the case of a bank, for example,
deposit interest rates typically lag behind loan interest rates.