ALM practices, multiple uncertainty and monopolistic behavior: A microeconomic study of banking decisions
AbstractWe 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.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 32873.
Date of creation: 15 Jul 2011
Date of revision:
Banking; ALM; multiple uncertainty; monopolistic behavior;
Find related papers by JEL classification:
- 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
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-29 (All new papers)
- NEP-BAN-2011-08-29 (Banking)
- NEP-RMG-2011-08-29 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Scholtens, Bert & van Wensveen, Dick, 2000. "A critique on the theory of financial intermediation," Journal of Banking & Finance, Elsevier, vol. 24(8), pages 1243-1251, August.
- Dermine, J., 1986. "Deposit rates, credit rates and bank capital : The Klein-Monti Model Revisited," Journal of Banking & Finance, Elsevier, vol. 10(1), pages 99-114, March.
- Tarron Khemraj, 2010. "What does excess bank liquidity say about the loan market in Less Developed Countries?," Oxford Economic Papers, Oxford University Press, vol. 62(1), pages 86-113, January.
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