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ALM practices, multiple uncertainties and monopolistic behavior: a microeconomic study of banking decisions

Author

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  • Antonio Ruiz Porras

    (Departamento de Metodos Cuantitativos. Universidad de Guadalajara, CUCEA. Periferico Norte 799, Nucleo Universitario Los Belenes, 45100, Zapopan, Jalisco, Mexico)

Abstract

We study the decisions that a monopolistic bank takes to achieve risk management and profit objectives. The bank faces liquidity and solvency risks because loans may not be repaid and because unexpected deposit withdrawals may occur. The Asset-Liability-Management (ALM) banking model shows that compromise solutions are necessary to deal with the tradeoffs between liquidity management and profitability. It also shows that asset management practices increase profits. Moreover it shows that liability management practices and market power support profitability. Finally, the model confirms that banks should undertake long-term risky investments when depositors trust the viability of the asset transformation process.

Suggested Citation

  • Antonio Ruiz Porras, 2011. "ALM practices, multiple uncertainties and monopolistic behavior: a microeconomic study of banking decisions," EconoQuantum, Revista de Economia y Finanzas, Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia., vol. 8(2), pages 163-181, Julio-Dic.
    • Handle: RePEc:qua:journl:v:8:y:2011:i:2:p:163-181
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    References listed on IDEAS

    as
    1. Erricos J. Kontoghiorghes & Berç Rustem & Peter Winker (ed.), 2008. "Computational Methods in Financial Engineering," Springer Books, Springer, number 978-3-540-77958-2, September.
    2. Brenda González-Hermosillo & Jenny X. Li, 2008. "A Banking Firm Model: The Role of Market, Liquidity and Credit Risks," Springer Books, in: Erricos J. Kontoghiorghes & Berç Rustem & Peter Winker (ed.), Computational Methods in Financial Engineering, pages 259-271, Springer.
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    Citations

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    Cited by:

    1. Carolina Laureti & Ariane Szafarz, 2012. "The Time-Inconsistency Factor: How Banks Adapt to their Mix of Savers," Working Papers CEB 12-035, ULB -- Universite Libre de Bruxelles.
    2. Carolina Laureti & Ariane Szafarz, 2014. "Having it Both Ways: A Theory of the Banking Firm with Time-Consistent and Time-Inconsistent Depositors," Working Papers CEB 14-011, ULB -- Universite Libre de Bruxelles.

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    More about this item

    Keywords

    Banking; ALM; multiple uncertainties; monopolistic behavior.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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