Assesing Liability Management

Assessing Liability Management

Tammy McMahan

Rasmussen College

Author Note

        This paper is being submitted on September 5, 2015, for Roy Vivar’s B415 Risk Management Course

Assessing Risk Management

        Asset-liability management is technique companies employ to coordinate the management of assets and liabilities so that an adequate return can be earned. By managing a company's assets and liabilities, executives are able to influence net earnings, which may translate into increased stock prices. It is the administration of policies and procedures that address financial risks associated with changing interest rates, foreign exchange rates and other factors that can affect a company’s liquidity. It also seeks to limit risk to acceptable levels by monitoring and anticipating possible pricing differences between a company’s assets and liabilities.

 Bank of America is one of the world's largest financial institutions, serving individual consumers, small and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 48 million consumer and small business relationships with approximately 4,800 retail financial centers and approximately 15,900 ATMs and award-winning online banking with 31 million active users and approximately 17 million mobile users. Bank of America is among the world's leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 3 million small business owners through a suite of innovative, easy-to-use online products and services. The company serves clients through operations in all 50 states, the District of Columbia, the U.S. Virgin Islands, Puerto Rico and more than 35 countries. Bank of America Corporation stock (NYSE: BAC) is listed on the New York Stock Exchange. (Investor Relations, 2015)

The Board of Directors and the Senior Management Team are responsible for the 5 aspects of Asset Liability Management. ALM refers to efforts by a bank’s board and senior management team to carefully balance the bank’s current and long-term potential earnings with the need to maintain adequate liquidity and appropriate interest rate risk (IRR) exposures. Each bank has a distinct strategy, customer base, product selection, funding distribution, asset mix, and risk profile. These differences require that assessments of risk exposures and risk management practices be customized to each bank’s specific risks and activities and not take a one-size-fits-all approach. (Gray, 2015)

The banks can mitigate this risk by having a risk limit plan set to secure them from losing money. A risk limit plan is the amount of risk a person from a firm or bank is allowed to expose his employer too. Our lending and investment activities sometimes have environmental liabilities associated with them. That's why we consider environmental sensitivity an important component of our credit, investment, underwriting and payment procedures.

Bank of America’s credit policy for working with environmental sustainability policy requires that customers are in full compliance with environmental laws and regulations, we have developed additional policies to further identify, evaluate and mitigate environmental risks for certain sectors or businesses. Our environmental policies incorporate an Environmental Due Diligence process (EDD) that is typically conducted by a loan officer or relationship manager. Additional evaluation may be conducted by consultants or other outside experts and can range from simple questionnaires to very complex and lengthy evaluations that may include community input, geological, engineering, and other investigations. Our customers' adherence to our policy is typically reviewed by a credit officer. An additional audit process is used to evaluate compliance with bank policies and can be conducted at any time during the life of a financial commitment or loan.