Moorad Choudhry - Bank Asset and Liability Management: Strategy, Trading, Analysis

Contents

Advance Praise for Bank Asset and Liability Management

Like the authors book The Bond and Money Markets: Strategy, Trading, Analysis, this is again a superb example how a financial book should be written! Not only has Moorad managed to write another hit, but as with the previous book he has managed to show workable illustrations so that a novice or a full-blown professional can make good use of the examples either for understanding the subject better or for simply brushing up on ones memory. The book comes highly recommended!

Tibor Szigeti

Fixed Income Analytics

Bloomberg L.P., London

Again, Moorad Choudhry takes his readers beyond the older books in the market that simply list a string of facts, and into a world of highly practical and up-to-the-minute concepts and strategies. Bank assetliability management is about knowing when and how to use all the tools available. The modern practitioner cant be limited to just managing rate and liquidity risk, but must be highly versed in securitisation and other balance sheet techniques. This book tackles the whole spectrum.

Peter Eisenhardt

Head of Short Term Fixed Income Origination

Debt Capital Markets

Bank of America N.A.

Professor Choudhry has written a comprehensive guide providing invaluable insights into bank asset and liability management. The subject matter is delivered in an accessible and refreshingly clear manner. This latest publication is an essential read for anyone involved in the industry. Moorad delivers financial theories in a practical and entertaining package.

Mark Williams (Director) and Wei Lieh Goh

Hedge Fund Derivatives

KBC Financial Products, London

A complete representation of the assetliability management challenge facing the bank risk manager, the best practice to deploy and the mitigating tools available. A thoroughly well-researched piece.

Remi Bola

Chief Operating Officer

Asset Backed Solutions

The Law Debenture Corporation plc

A highly readable text which serves as an essential primer for both market practitioners and academics alike to help understand the rapidly evolving risk management techniques used by Treasury and Money Market desks. The author uses real-world examples throughout, and includes extensive and up-to-date coverage of current financing products and the regulatory environment.

Adam Sutton

Head of European Repo

Global Funding Desk

Bank of America, London

A brilliant and comprehensive account of all the various disciplines that make up the art of bank assetliability management. Professor Choudhry brings together the instruments, the procedures and the strategies that are vital knowledge for any successful risk manager or ALCO member. This book will be appreciated and respected by all bankers in all fields. A fantastic work! Every bank should have a copy of this book.

Mohamoud Barre Dualeh

Private Banking Unit

Abu Dhabi Commercial Bank, UAE

Bank Asset And Liability Management offers a clear, insightful perspective of the global banking and liquidity markets. It covers all the major products in just the right level of detail and is written in a practical, accessible style. This book is a great reference tool for all finance professionals. Really, really impressive.

Bhavin Parmar

Securities Finance Trader

ABN Amro Bank N.V., London

An informative account of banking ALM from the point of view of the market practitioner. The author brings together all the various strands that make up this important discipline in a technical yet accessible way

Shahid Ikram

Head of UK Sovereign bonds and G7 hedge fund

Morley Fund Management IT, London

Moorad Choudhry has managed to update and include the most relevant and practical knowledge required for ALM in a modern financial institution, especially with Basle II requirements and adoption looming ahead in 2008. Balance sheet management, financial markets and credit risk management, coupled with regulatory capital implications, are important considerations that are well addressed in this book that anybody looking to learn about or have a handy guide on ALM will find useful!

Lee Ka Shao

Managing Director, Head of Investments

DBS Bank Limited, Singapore

Copyright 2007 Moorad Choudhry

Published in 2007 by John Wiley & Sons (Asia) Pte Ltd

2 Clementi Loop, #02-01, Singapore 129809

All rights reserved.

No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as expressly permitted by law, without either the prior written permission of the Publisher, or authorization through payment of the appropriate photocopy fee to the Copyright Clearance Center. Requests for permission should be addressed to the Publisher, John Wiley & Sons (Asia) Pte Ltd, 2 Clementi Loop, #02-01, Singapore 129809, tel: 65-64632400, fax: 65-64646912, e-mail: .

The views, thoughts and opinions expressed in this book are those of the author in his individual capacity and should not in any way be attributed to KBC Financial Products or to KBC Bank N.V., or to Moorad Choudhry as a representative, officer, or employee of KBC Financial Products or KBC Bank N.V.

This book does not constitute investment advice and its contents should not be construed as such. Any opinion expressed does not constitute recommendation to any reader. The contents should not be considered as a recommendation to deal and the author does not accept liability for actions resulting from reading of any material in this book.

While every effort has been made to ensure accuracy, no responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this book can be accepted by the author, publisher or any named person or corporate entity.

The material in this book is based on information that is considered reliable, but neither the author nor the publishers warrant that it is accurate or complete, and it should not be relied on as such. Opinions expressed are current opinions only and are subject to change. The author and publishers are not soliciting any action based upon this material. Moorad Choudhry and any named person or entity may or may not have a position in any capital market instrument described in this book, at the time of writing or subsequently. Any such position is subject to change at any time and for any reason.

This disclaimer in its entirety applies to the CD-R accompanying this book.

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Library of Congress Cataloging-in-Publication Data

978-0-470-82135-0

For Angela...my dream girl.

I wish wed met years ago.

Foreword

Asset and liability management (ALM) is a key aspect of risk management in the financial services industry. The business of financial services firms is risk and return, using their skills in the measurement of risks to make profits. In modern finance, this often involves using complex products. The types of risks taken by firms are often complex and hidden, reflecting the financial products on offer and the wider marketplace. As such, when analysing risks, it is important to think about the firms balance sheet holistically. A firms ALM Committee (ALCO) uses this modus operandi, managing its assets and liabilities, and supervising liquidity, credit, market and operational risks, in short prudential matters, at the most senior level.