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The Education of a Value Investor
Asset Liability Management & Interest Rate Risk in the Banking Book - Part 1 of 4
Nov 1, 2024
Eric Schaanning, an expert in financial risk management with notable leadership roles at Nordea, UBS, and Credit Suisse, dives into the intricacies of Asset Liability Management (ALM) and Interest Rate Risk in banks. He discusses how recent banking crises highlight the need for effective risk measurement strategies. Insights from case studies reveal the importance of liquidity management and the impact of interest rate fluctuations on financial stability. Schaanning also explores the challenges posed by low interest rates and regulatory frameworks affecting banking practices.
01:27:41
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Quick takeaways
- Asset Liability Management is essential for banks, likened to the cardiovascular system, as it controls managing risks like interest rate fluctuations.
- The collapse of Silicon Valley Bank demonstrates the dire consequences of failing to hedge against interest rate risk and mismanaging deposit flows.
Deep dives
Introduction to Asset Liability Management
Asset Liability Management (ALM) plays a crucial role in the financial health of banks, likened to the cardiovascular system of the banking world. It involves the management of assets and liabilities on a bank's balance sheet to effectively control risks, particularly interest rate risk. A notable example discussed is the Silicon Valley Bank (SVB), which faced insolvency because it invested short-term customer deposits into long-term securities without adequate hedging. The discussion emphasizes that failures in ALM can lead to severe consequences, as demonstrated by historical parallels to previous banking crises.
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Discover
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Listen to the best highlights from the podcasts you love and dive into the full episode