Bank Funds Management : Interest-Margin Measures and Relative Profitability

This study reports the results of a longitudinal study of the association between selected bank funds measures and relative profitability, with emphasis on high-performance banks. Bank funds management is an increasingly major component of bank financial management. Bank funds management has been described as the key to short-to-intermediate term decision making in today's dynamic and volatile environment. Broadly defined, funds management includes all policies and approaches designed to obtain fund from deposits and borrowing and to allocate them to loans and investments. More specifically, the emphasis in funds management is on the funds over which management has discretionary control. The concept of bank funds management may be thought of as incorporating two major systems-oriented approaches: (1) dynamic balance sheet balance sheet management -- application of optimizing management science models in a multi-period context, and (2) asset-liability management -- application of deterministic, computer based financial planning models in a short-run context. Asset-liability management is the primary focus of banks funds management today. It continues to grow in importance due to the increasing scope and complexity of banking. It incorporates features of other approaches to funds management, as well as management experience and judgment. Asset/liability management involves the acquisition of funds (liability management) and their allocation (asset management). It's basic purpose is to structure the resulting bank asset-liabiltliy portfolios consistent with the maximization of shareholder wealth, subject to constraints