Interest rate risk in the banking book : a best practice guide to management and hedging Asset Liability Management the practice of matching the term structure and cash flows of an organizations asset and liability portfolios to maximize returns and minimize risk is a key component of any financial institutions overall operating strategy. Due to a heavily regulated landscape and increasing competition for resources such as liquidity and capital financial institutions especially banks are driven to constantly search for ways to run a more sophisticated ALM operation. As a result the role of the ALM unit has to constantly evolve extending beyond the risk management field. On top of the units traditional function of managing risk associated to the banking book it now has to manage the regulatory capital of the bank and actively position the balance sheet to maximize profit. These contemporary challenges call for ALM optimization techniques more particularly ways to optimize the banking book using a quantifiable approach. The proposed book promotes active management of the banking book through optimization techniques presented in the book that effectively combine interest rate risk and liquidity risk management into one holistic approach