It is true that banks create both assets and liabilities in their day-to-day operations, but it is also equally true that management in bank is keener to manage their assets rather than their liabilities. In fact, for quite some time, bankers were happy to keep an eye on their asset acquisition and treated the liability as granted. Of late, the mindset has changed and banks have increasingly shown equal, if not more, interest in liability management. In fact, bank's main business is to manage risk.
Importantly, liquidity and interest risk management constitutes the core business of banks. These activities of
banks result in management of liquidity and interest risk in their operations.
In fact, banks have been managing risks in handling money collected from customers
and extending loan to customers out of the funds collected. This operation was
simple and banks could manage it easily by keeping close track on their limited
number of customers. In early days, banks were managing risk by having in-depth
knowledge of customers. `Know thy customer' was the basic sermon to all banks. |
