What does policy mean? In short, policies simply guide our actions.

Policies can be guidelines, rules, regulations, laws, principles, or directions. They say what is to be done, who is to do it, how it is to be done and for (or to) whom it is to be done. Policy occurs at various levels and points of interactionpersonal, organizational, and public. If we use the right strategies we can be successful in influencing all aspects of policy.

Outline rules Provide principles that guide actions Set roles and responsibilities Reflect values and beliefs State an intention to do something

Why a policy may have to be developed or changed:

Basic needs are not being met People have been treated unfairly Current policies or laws are not enforced or effective Proposed changes in policies and laws would be harmful Existing or emerging conditions pose a threat to public health, safety, education or well-being

The ALM Policy is the framework of the ALM process. Each banks balance sheet mix exposes it to different levels of the 3 main forms of financial risk: Interest Rate Risk, Liquidity Risk, and Credit Risk. It is the universal goal of every bank to maximize its profitability, but do so in a manner that does not expose the bank to excessive levels of risk. The Policy defines the limits for key measures of risk, limits that have been established to specifically accommodate a banks unique balance complexion, strategic direction, and appetite for risk.

Dynamic ALM: Leading financial institutions understand that simply using a static value effect approach to managing risk is only part of the picture. To make better decisions, you need better analysis. Dynamic ALM gives you the power to fully quantify potential impacts of interest rate and exchange rate fluctuations on future earnings and cash flow streams. The dynamic ALM approach intends to optimize not only the asset allocation, but also the management rules at the same time. The result is not merely a recommendation for the ideal asset allocation, but also for the design of the rule system. The following example is to clarify this approach.

Dynamic ALM delivers: Scenario-dependent projections of future earnings, balance, market values, yields, cash-flows, etc. Ability to measure earnings effects, future liquidity risk, and productinherent optionality risk Powerful new business simulation with user defined volume projections, instrument characteristics, price rate models, and maturity schedules Ability to capture customer behavior: product shift simulations and multifactor prepayment modeling Intuitive user interface with object orientated scenario modeling Stochastic rate scenarios using different term structure models earnings at risk