Asset-Liability Management (ALM)
Managing the balance sheet's exposure to interest rates, liquidity, and the shape of the curve.
Asset-Liability Management is the discipline of managing a financial institution's balance sheet so that the maturity, repricing, and liquidity profiles of assets and liabilities are deliberately aligned with the institution's risk appetite.
The two lenses
- Net Interest Income (NII) — an earnings view. How does net interest income change over the next 1–2 years under different rate scenarios? Driven by repricing gaps.
- Economic Value of Equity (EVE) — a value view. The present value of asset cash flows minus liability cash flows. Captures long-dated, structural rate risk that an NII window misses.
A balance sheet can look fine on NII and dangerous on EVE (or vice versa) — both are required.
Key exposures
- Repricing risk — assets and liabilities reprice at different times.
- Basis risk — assets and liabilities tied to different indices (e.g., Prime-linked loans vs. SOFR-linked funding).
- Curve risk — earnings depend on the shape, not just the level, of rates.
- Option risk — prepayments, early withdrawals, caps/floors.
How PhxIQ relates
The dashboard's rates, curve spreads, policy rates, and mortgage panel are the live inputs to scenario thinking. The morning briefing frames each day's move through this ALM lens.