Financial markets / Financial institutions : Bank Money Management

Overview

• Money management is considered an essential activity in the banking business, with responsibility for managing assets and liabilities falling into three areas, managing liquidity, maintaining the quality of assets and generating revenues.

• Transactions of the money management divisions of the bank are recorded in the banking book, while transactions of other divisions are recorded in the trading book. These other transactions may include foreign currency exchanges, buying and selling debt instruments and derivatives, including insurance on debt instruments, and real estate capital.

• The responsibilities of the money management divisions include managing risks in terms of interest rates and liquidity through investment portfolio management for the highest returns within acceptable risk levels and as consistent with state regulations, for the continuing health of the institution. Currency, whether foreign or domestic, has the highest liquidity and adequate sources of both short and long-term capital must be found to meet the needs of the various bank offices in a timely manner

• For assessing the risks of interest rate changes, banks analyze the periods of change in interest rates for assets and liabilities as well as assessing the impacts of changes in various classes of interest rate, including deposits, loans and on the money and capital markets. These influence revenues from interest on assets and liabilities and on the bank's financial balance sheets in the future. The impacts of all these factors must be managed appropriately.

• Banks manage liquidity with the greatest effectiveness and at the most appropriate cost as is consistent with the needs for cash-flows in the conduct of business, both under ordinary conditions and in crises, and in accord with Bank of Thailand regulations. Future liquidity needs must be assessed from cash-flow volumes, both in and out, and by currency, taking into consideration all related factors, as concerns both assets and liabilities and related conditions.

• Banks must monitor changes in the operational environment, for example in official policy and political and economic conditions, both domestically and abroad, that might impact money management. Banks should also have an early warning system covering all risk factors along with contingency funding plans in case of liquidity problems.