ALM Knowledge Center

Core deposits represent a critical funding source for community banks. The behavioral characteristics of non-maturity deposits (NMDs) — including decay rates, repricing betas, and surge balances — are...

The Earnings-at-Risk (EaR) framework measures potential changes in net interest income (NII) under various interest rate scenarios. Standard shock scenarios include parallel shifts of +/-100, 200, 300...

Supervisory guidance on model risk management (SR 11-7) establishes expectations for model development, implementation, validation, and governance. Key requirements include: (1) thorough documentation...

Economic Value of Equity (EVE) measures the net present value of all assets minus liabilities under different rate scenarios. Unlike NII-based measures which focus on short-term earnings, EVE captures...

Community banks must maintain robust contingency funding plans (CFPs) that identify potential liquidity stress events, quantify available funding sources, and establish action triggers. Key components...

Duration gap analysis compares the weighted average modified duration of assets to liabilities, adjusted for leverage. A positive duration gap indicates that asset durations exceed liability durations...

Effective stress testing requires thoughtful scenario design that reflects both historical precedents and plausible hypothetical environments. Institutions should test a range of scenarios including r...

Capital planning should be tightly integrated with ALM to ensure the institution maintains adequate capital buffers under stressed conditions. The capital planning process should incorporate EVE-at-ri...

Federal regulators — including the OCC, FDIC, Federal Reserve, and NCUA — have converged on core expectations for ALM practices. The FFIEC advisory on interest rate risk emphasizes that institutions s...