Definition for : Asset-Liability Management

Asset-Liability Management ("ALM") is the action of managing - for instance in a financial institution or a corporate - the net risk Position between Assets and Liabilities, particularly with respect to imbalances generated by the evolutions of Interest rates, currencies and Inflation, but also Maturity mismatch, liquidity mismatch, Market risk and Credit risk. The "Maturity mismatch" refers to the difference in maturity between the Assets and the Liabilities: this mismatch can arise over time, for instance as a result of early prepayments. The "liquidity mismatch" refers to the speed at which Assets can be sold in order to pay down Liabilities when they become due. The "Market risk" refers to trends in the entire economy. The "Credit risk" refers to the Risk of default on the part of a debtor.

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