Banking · Asset Liability Management
The Asset Liability Management (ALM) function in a bank is frequently characterized as managing both 'structural liquidity' and 'interest rate sensitivity'. This dual objective is pursued because the ALM framework aims to:
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- 1Focus exclusively on maximizing the Net Interest Margin (NIM) regardless of the maturity profiles of assets and liabilities
- 2Serve only as a reporting mechanism for the central bank without influencing the bank's lending or deposit rates
- 3Maintain a significant mismatch in maturity buckets to increase short-term profitability while ignoring long-term funding stability
- 4Optimize the Net Interest Income (NII) over the long term while ensuring the bank can meet its payment obligations under both normal and stressed conditions✓
Correct answer
Optimize the Net Interest Income (NII) over the long term while ensuring the bank can meet its payment obligations under both normal and stressed conditions
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