The Economics and Financial Education Program

  A holistic approach to asset and liability management (ALM) in banks involves a comprehensive framework that not only focuses on compliance with regulatory requirements but also aims at optimizing profitability and maintaining financial stability. This approach integrates various aspects of banking operations, including risk management, strategic planning, and financial decision-making. Here are some key elements of a holistic ALM strategy: Regulatory Compliance Banks must adhere to evolving guidelines and scope for managing interest rate risk in the banking book (IRRBB), assess net interest income (NII) impact within regulatory stress testing exercises, and meet heightened supervisory expectations around model management and risk reporting. Market Dynamics Financial institutions face pressures on profit margins from competitive forces, rising costs due to higher capital and liquidity reserve requirements, and the challenges posed by high interest rates. A holistic AL...