ALM is a comprehensive and dynamic framework for measuring, monitoring and managing the market risk of a bank. It is the management of structure of balance sheet (liabilities and assets) in such a way that the net earnings from interest is maximized within the overall risk-preference (present and future) of the institutions. The ALM functions extend to liquidly risk management, management of market risk, trading risk management, funding and capital planning and profit planning and growth projection.
The three main pillars of ALM are:
The ALM process rests on three pillars:
i. ALM Information Systemso Management Information Systems
o Information availability, accuracy, adequacy, and expediency
ii. ALM Organizationo Structure and responsibilities
o Level of top management involvement
iii. ALM Processo Risk parameters
o Risk management
o Risk policies and tolerance levels.
o Risk identification
o Risk measurement