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Risk Modeling: Asset Liability Management (ALM)

In: Bank Management and Control

Author

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  • Johannes Wernz

Abstract

Some banks like Dexia (Belgium) or Depfa (Ireland, later part of HRE, Germany) had refinancing schemes that were quite risky because there was a big asset mismatch. Loans were provided long-term whereas refinancing was done short-term. Often the yield curve is such that long-term interest rates are higher than short-term interest rates. Before the financial crises, there were some nice gains as a result of this difference in interest rates. Nevertheless, when the financial crisis began in 2007 the yield curve twisted and the asset mismatch led to big losses. It is possible that asset mismatches might cause further issues for banks in the near future. Even the U.S. Fed will presumably face such a problem soon.

Suggested Citation

  • Johannes Wernz, 2014. "Risk Modeling: Asset Liability Management (ALM)," Management for Professionals, in: Bank Management and Control, edition 127, chapter 9, pages 93-96, Springer.
    • Handle: RePEc:spr:mgmchp:978-3-642-40374-3_9
    DOI: 10.1007/978-3-642-40374-3_9
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