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- Title
A Linear Programming Model for Assessing Asset-Liability Management in Banks.
- Authors
Dash, Mihir; Pathak, Ravi
- Abstract
Bank Asset-Liability Management (ALM) has gained increasing relevance in recent years, especially with the implementation of the Basel II norms for the regulation of Indian banks by the Reserve Bank of India, and particularly in the wake of the global financial crisis. At the heart of ALM is the fundamental trade-off between liquidity, profitability and interest rate risk. The present study proposes a linear programming model for ALM, which seeks to maximize the rate of return/profit, subject to constraints dictated by liquidity and statutory requirements. The model was applied to a sample of banks operating in India, resulting in a recommended optimal asset-liability mix of the banks in the sample. Using these results, the study assesses the nature of ALM of different bank groups, in terms of its implications on liquidity, profitability and interest rate sensitivity.
- Subjects
INDIA; BANK assets; ASSET-liability management; LINEAR programming; BASEL II (2004); RESERVE Bank of India; GLOBAL Financial Crisis, 2008-2009; BUSINESS cycles
- Publication
IUP Journal of Financial Risk Management, 2011, Vol 8, Issue 1, p50
- ISSN
0972-916X
- Publication type
Article