Research On Objective-tradeoff Principle And Comprehensive Evaluation Model For Bank's ALM

Without the practice of asset-liability managing in commercial banks, there would be no the theories of asset-liability management. The Theory of Asset Management appeared on the stage first in the 70's of the 18th century, which focused on the effective asset allocation so as to provide sufficient liquidity. The theory put stress on the creditor of the balance sheet. It was composed of Commercial Loan Theory, Shiftability Theory, Anticipated Income Theory and Asset structure Theory, etc. The Theory of Liability Management followed in the 60's of the 20th century, which emphasized on getting into debts on bank's own initiative to provide sufficient liquidity and to support profitability. The theory laid stress on the debit of the balance sheet. It included Funds-purchasing Theory and Financial Instruments Sale Theory. Contemporary Integrated Asset-liability Management (ALM) Theory came into being in the 70's of the 20th century. The theory is essentially a complex and comprehensive financial model by coordinating the management of assets and liabilities. With the increasing volatility and sophistication of financial markets, and with dramatic improvements in applied mathematics and computer technology, ALM is moving to a more quantitative, precise level. But as we know, not only has the abstract nature of ALM's three objectives (liquidity, profitability, security) been difficult to grasp by operational management, but also the lack of standardization in its interpretation and application has further clouded ALM's potential value on offer. So this paper is an effort to provide a quantitative research about the three objectives, and to construct an analytical model for the Objective-tradeoff Principle, which is one of the theoretical bases of Contemporary Asset-liability Management Model. The analytical model is called Fuzzy Model of Comprehensive Evaluation, which is expected to search for the best combination of three objectives under their certain constraints, so as to make more effective asset-liability management. After entering WTO, China's commercial banks are confronted with severely competitive environment, which makes researching about management methods very necessary. This model is also applicable to the Asset-liability Percentage Management in china's commercial banks.