“An Ill Wind that Blows No Good” Economic Headwinds and Asset and Liability Management By Elizabeth Madlem, Vice President of Compliance Operations and Deputy General Counsel, Compliance Alliance Financial institutions are facing headwinds on account of burgeoning non‑performing assets, corporate malfeasance, a slowdown in the economy and a mismatch between the maturity profile of assets and liabilities. Severe liquidity strains caused the failure of Silicon Valley Bank, Signature Bank and First Republic Bank. Yet despite weaker economic conditions, sharply higher interest rates, high inflation, financial market stress and concerns over a potential recession, the banking industry demonstrated resilience. How? Asset and Liability Management (ALM) is a common phrase thrown around a board room when in discussions about the viability and future of a bank. It is the practice of mitigating financial risks resulting from a mismatch of assets and liabilities, a combination of risk management and financial planning. Not only is it vital for the sustainability and longevity of financial institutions within the financial landscape, but it solidifies the important roles that banks play in maintaining the stability and growth of economies. Liquidity risk has become an increasingly important parameter for the assessment of a financial institution. But with a new age of depositor behavior and the evolution of regulations, achieving a dynamic, integrated ALM program is challenging for banks of all sizes. 18 West Virginia Banker
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