Paper Topic:

Asset / Liability Management: Liquidity and Interest Rate Risk

Asset /Liability Management : Liquidity and Interest Rate Risk

Table of Contents

TOC \o "1-3 " \h \z \u HYPERLINK \l "_Toc8 " I Introduction PAGEREF _Toc8 \h 2

HYPERLINK \l "_Toc9 " I .1 Arvest Bank - An Overview PAGEREF _Toc9 \h 3

HYPERLINK \l "_Toc0 " II . Economic Environment PAGEREF _Toc0 \h 4

HYPERLINK \l "_Toc1 " III . Interest Rate Risk PAGEREF _Toc1 \h 7

HYPERLINK \l "_Toc2 " III . 1 Definition of Interest Rate Risk PAGEREF _Toc2 \h 8

HYPERLINK \l "_Toc3 " III .2 Interest Rate Risk Management Policies PAGEREF _Toc3 \h

10

HYPERLINK \l "_Toc4 " III .3 Guidelines for Interest Rate Risk Management PAGEREF _Toc4 \h 12

HYPERLINK \l "_Toc5 " III .4 Measuring and Monitoring Interest Rate Risk PAGEREF _Toc5 \h 13

HYPERLINK \l "_Toc6 " III .5 Interest Rate Risk Measurement Techniques PAGEREF _Toc6 \h 14

HYPERLINK \l "_Toc7 " III .5 .1 Measuring interest rate risk using GAP Analysis PAGEREF _Toc7 \h 15

HYPERLINK \l "_Toc8 " III .5 .2 Static Gap Analysis PAGEREF _Toc8 \h 17

HYPERLINK \l "_Toc9 " III .5 .3 Duration Analysis PAGEREF _Toc9 \h 22

HYPERLINK \l "_Toc0 " III .5 .4 Simulation Models PAGEREF _Toc0 \h 23

HYPERLINK \l "_Toc1 " III .6 Interest Rate Risk Management by Arvest Bank PAGEREF _Toc1 \h 24

HYPERLINK \l "_Toc2 " IV . Liquidity Risk PAGEREF _Toc2 \h 24

HYPERLINK \l "_Toc3 " IV .1 Requirements for Effective Liquidity Risk Management PAGEREF _Toc3 \h 27

HYPERLINK \l "_Toc4 " IV .1 .1 Establishing Liquidity Risk Management Policy PAGEREF _Toc4 \h 27

HYPERLINK \l "_Toc5 " IV .1 .2 Establishment of an Organization Structure PAGEREF _Toc5 \h 28

HYPERLINK \l "_Toc6 " IV .1 .3 Suitable Information Technology System PAGEREF _Toc6 \h 29

HYPERLINK \l "_Toc7 " IV .1 .4 Contingency Plan for Liquidity Risk Management PAGEREF _Toc7 \h 29

HYPERLINK \l "_Toc8 " IV .2 Management of Liquidity Risk at Arvest Bank PAGEREF _Toc8 \h 29

HYPERLINK \l "_Toc9 " IV .2 .1 Analysis of Balance Sheet PAGEREF _Toc9 \h 30

HYPERLINK \l "_Toc0 " IV .2 .2 Analysis of Income Statement PAGEREF _Toc0 \h 36

HYPERLINK \l "_Toc1 " V . Recommendations PAGEREF _Toc1 \h 38

HYPERLINK \l "_Toc2 " V .1 Proposed Actions to Deal with Competitive Strengths and Weaknesses PAGEREF _Toc2 \h 38

HYPERLINK \l "_Toc3 " V .2 Actions against Economic Forecasts PAGEREF _Toc3 \h 39

HYPERLINK \l "_Toc4 " V .3 Actions to Deal with the Results of Ratio Analysis PAGEREF _Toc4 \h 40

HYPERLINK \l "_Toc5 " V .3 .1 Implementation of the Strategic Plan PAGEREF _Toc5 \h 40

HYPERLINK \l "_Toc6 " References PAGEREF _Toc6 \h 42 I Introduction Despite the rapid changes in the business environment it has been the important function of the banks is to manage the risks associated with the flow of money . In fact this risk is inherent as has been observed over a period of time . The economic growth of a nation depends largely on the bank loans provided for financing various economic activities like construction , expansion of business and industries , purchase and trading in inventories , home , and other consumer loans . In to fund the loans and to...

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