Asset and liability management in financial crisis

Author： Tektas Arzu Ozkan-Gunay E. Nur Gunay Gokhan

ISSN： 1526-5943

Source： The Journal of Risk Finance Incorporating Balance Sheet, Vol.6, Iss.2, 2005-04, pp. : 135-149

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Abstract

Purpose ‐ An efficient asset-liability management requires maximizing banks' profit as well as controlling and lowering various risks. This multi-objective decision problem aims to reach goals such as maximization of liquidity, revenue, capital adequacy, and market share subject to financial, legal requirements and institutional policies. This paper models asset and liability management (ALM) in order to show how different managerial strategies affect the financial wellbeing of banks during crisis. Design/methodology/approach ‐ A goal programming model is developed and applied to two medium-scale Turkish commercial banks with distinct risk-taking behavior. This article brings new evidence on the performance of emerging market banks with different managerial philosophies by comparing asset-liability management in crisis. Findings ‐ The study has shown how shifts in market perceptions can create trouble during crisis, even if objective conditions have not changed. Originality/value ‐ The proposed model can provide optimal forecasts of asset-liability components and banks' financial standing for different risk-taking strategies under various economic scenarios. This may facilitate the preparation of contingency plans and create a competitive advantage for bank decision makers.