Balancing a balance sheet is far from a theoretical exercise. Asset-liability management (ALM ) governs the daily exposure of a bank or insurer to market movements, funding needs, and regulatory constraints. This text offers a clear and practical framework for understanding ALM, its metrics, mechanisms, and the profiles of those who practice it.
What is Asset Liability Management?
Definition and scope
Asset Management (ALM) refers to the dynamic interplay between assets and liabilities to align returns, risks, and time horizons. In practical terms, balance sheet management focuses on maturities, interest rate sensitivity, financing capacity, and margin stability. Whether in French or English ( asset and liability management ), the underlying concept remains the same: managing the financial institution over the long term , beyond just quarterly performance. This should not be confused with Application Lifecycle Management (sometimes called "HP Application Lifecycle") in IT, which belongs to a completely different field.
ALM in banking and insurance: commonalities and differences
In banking, asset and liability management (ALM) addresses structural interest rate risk and liquidity management (LCR, NSFR), calculates interest income sensitivities, and assesses the impact on the economic value of the balance sheet. In insurance , the focus is on very long-term asset-liability matching, hedging of liabilities, capital volatility, and meeting solvency requirements. In both cases, the underlying principle is the same: to manage financial risks in support of sustainable and regulated development.
Key issues for balance sheet management
Interest rate risk, liquidity and solvency
Rising or falling interest rates immediately transform the balance sheet profile. Interest rate risk affects the net interest margin and economic value; liquidity, on the other hand, determines the ability to meet cash outflows under all circumstances. liquidity management relies on buffers, diversified funding sources, and stress tests. On the capital side, asset and liability management (ALM) ensures that the balance sheet remains resilient to various shocks, in coordination with the risk management .
Financial management and value creation
Beyond protection, ALM contributes to financial management : choosing financing structures, calibrating hedges, arbitrating between fixed and variable rates, and defining internal transfer pricing (FTP). When properly implemented, this approach reduces earnings volatility, improves the cost of liabilities, and secures the strategic trajectory. It is a pivotal function at the intersection of finance, markets, sales, and regulatory affairs.
Key Methods and Indicators
Gap, duration, and sensitivities
The "gap" metric maps the timing differences between assets and liabilities. Duration , in the technical sense (duration: a simple definition, a measure of price sensitivity to interest rate changes), complements the analysis by estimating the balance sheet's response to a shock. Other indicators track changes in economic value (ΔEVE) and net interest margin (ΔNII). Sensitivities, convexities, and slope or curve scenarios help build a detailed and actionable diagnosis.
Committees and governance
Key decisions are made by the Asset Liability Committee (ALCO): setting risk appetites, hedging policies, liquidity limits, and adherence to prudential frameworks. Governance involves Finance, Treasury, Markets, Risk, and Business Lines, with clear roles between the front line (execution), the second line (control), and senior management. This structure gives ALM the necessary legitimacy to act .
operational implementation
Models, data and stress scenarios
A good system combines data quality , robust models , and clear reporting . Teams produce static and dynamic balance sheet views, multi-scenario simulations, liquidity and solvency stress tests, and hedging analyses. Consistency between behavioral assumptions (prepaid accounts, demand deposits) and regulatory constraints determines the reliability of decisions. The " ALM definition " is particularly relevant here: linking theory to operational realities.
Organization: Group treasury and cash management
In practice, the function works closely with the group treasury and cash management . The former manages day-to-day financing, the latter optimizes flows and centralization; ALM sets the framework, time horizon, and limits. This coordination aligns short-term and long-term objectives, avoids conflicting trade-offs, and ensures the successful execution of ALCO's decisions.
Recruitment and skills in ALM
Profiles, know-how and posture
liability management (ALM) roles require a solid quantitative foundation (statistics, financial markets, financial mathematics), a strong understanding of regulations , and the ability to translate data into clear recommendations . Knowledge of balance sheet products, hedging strategies, internal fund transfers, and data systems is crucial. Effective ALM management combines analytical rigor with strong communication skills, working effectively with business units and senior management.
Vauban Executive Search support
Vauban Executive Search is an executive search firm specializing in finance, investment, real estate, renewable energy, and life sciences. With a human touch, we conduct tailored assignments in France and internationally to identify experienced professionals and senior managers in asset and liability management ( ALM) , balance sheet management , treasury , liability management , and risk management . Our in-depth knowledge of organizations and key roles allows us to assess a candidate's ability to navigate between technical expertise, governance, and strategy. Do you have a confidential need or a project to structure? A confidential discussion can often save valuable time.
Going further
Whether you're a universal bank , a niche player , or a life insurer , ALM remains a cornerstone of stability and performance . Clarifying objectives, ensuring reliable metrics, engaging committees, and attracting the right talent: these four levers transform asset-liability management into a competitive advantage. To shed light on a specific challenge, strengthen a team, or map a market, Vauban Executive Search is ready to listen. Share your expectations; we'll get back to you with a pragmatic approach tailored to your situation.
