Survey on Core Deposit Modeling in Japan: Toward Enhancing Asset Liability Management

Financial institutions conduct asset liability management (ALM) in three steps. The first step is to gauge the degree of risks inherent in their assets and liabilities, including off-balance transactions. The second step is to reduce funding costs as well as streamline investment. The third step is to seek an optimal combination of assets and liabilities to maximize profits. One of the vital objectives of ALM is to manage interest rate risk caused by the mismatch in the structure of assets and liabilities, since this is a main profit source for financial institutions.