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Asset and liability management (often abbreviated ALM) is the term covering tools and techniques used by a bank or other corporate to minimise exposure to market risk and liquidity risk through holding the optimum combination of assets and liabilities. [1]
Treasury management (or treasury operations) entails management of an enterprise's financial holdings, focusing on [1] the firm's liquidity, and mitigating its financial-, operational-and reputational risk. Treasury Management's scope thus includes the firm's collections, disbursements, concentration, investment and funding activities.
Liquidity regulations are financial regulations designed to ensure that financial institutions (e.g. banks) have the necessary assets on hand in order to prevent liquidity disruptions due to changing market conditions. This is often related to reserve requirement and capital requirement but focuses on the specific liquidity risk of assets that ...
One of its amendments provided that, a federal reserve bank may discount any commercial, agricultural or industrial paper for liquidity purposes. It also allowed necessary advances to its member banks secured by " any sound asset" [ 2 ] that would otherwise be described as ineligible [ 2 ] by the orthodox theory to provide bank reserves .
Contemporary bank management methods for liquidity are based on maturity analysis of all the bank's assets and liabilities (off balance sheet exposures may also be included). Assets and liabilities are put into residual contractual maturity buckets such as 'on demand', 'less than 1 month', '2–3 months' etc.
In macroeconomics, an open market operation (OMO) is an activity by a central bank to exchange liquidity in its currency with a bank or a group of banks. The central bank can either transact government bonds and other financial assets in the open market or enter into a repurchase agreement or secured lending transaction with a commercial bank.
Advanced Financial Risk Management: Tools and Techniques for Integrated Credit Risk and Interest Rate Risk Management. John Wiley. ISBN 978-0-470-82126-8. Culp, Christopher L. (2001). The Risk Management Process. Wiley Finance. ISBN 978-0-471-40554-2. Hachmeister, Alexandra (2007). Informed Traders as Liquidity Providers. DUV. ISBN 978-3-8350 ...
Liquidity is a prime concern in a banking environment and a shortage of liquidity has often been a trigger for bank failures. Holding assets in a highly liquid form tends to reduce the income from that asset (cash, for example, is the most liquid asset of all but pays no interest) so banks will try to reduce liquid assets as far as possible.