Overview

If fees and fee generating activities are ignored, banks are somewhat like an asset managment firm, much like a levered fund management firm.

However, banks have some distinct advantages and disadvantages over being a fund management company. In particular, they enjoy government insurance for their deposits, but are then also subject to stricter regulation. (see banking regulation)

Bank Assets

Banks can hold assets from any number of asset classes. Despite this fact, banks typically hold fixed income instruments as their primary asset class. In particular, banks often hold on their books the loans that they make to their customers, and fixed income securities purchased in the secondary markets.

Among the common assets that banks are the following:

• Mortgages represent one of the primary assets that banks invest in, and can also be fairly tricky to model.
• Structured Securities
• Bank Loans
  • Consumer Loans
  • Commercial Loans

Bank Liabilities

• Bank Deposits
  • Consumer Deposits
  • Commercial Deposits
  • State Deposits
  • Brokered Deposits
• Bank Borrowings

Asset Liability Management

Asset Liability Management is the function of optimizing the banks mix of asset and liabilities in order to maximize NII as well as managing risk.