The enemy and friend of asset and liability management

Balance Sheet

ISSN: 0965-7967

Article publication date: 1 August 2000



(2000), "The enemy and friend of asset and liability management", Balance Sheet, Vol. 8 No. 4.



Emerald Group Publishing Limited

Copyright © 2000, MCB UP Limited

The enemy and friend of asset and liability management

The enemy and friend of asset and liability management

Volatility is both the enemy and the friend of the world of asset and liability management. It is the reason why managing financial risks is so important. And it is the reason why the science exists. In this issue both our guest columnists provide thoughtful ideas and analysis on volatility. First up is Bill Robinson, one-time advisor to the Chancellor of the Exchequer and these days chief business economist on the financial advisory side of PricewaterhouseCoopers. He looks at changing attitudes toward debt and equity. "Debt", he points out, "can give you sleepless nights. If profits take a nose-dive you can always pass the dividend, but if you miss an interest payment you will be in serious trouble". He offers some advice on how to plan your campaign.

Then it is over to Richard Cookson. Richard is banking and markets editor of The Economist and in his analysis of the current volatility of stock markets he takes a look at firms finance themselves and suggests some ways that international banks will change in the future. "Will traditional banks, lumbered with all their legacy systems, have all their customers pinched by Web upstarts?", he asks.

Terry Simister, the chairman of the Institute of Risk Management, suggests that volatility could be rendered more tame. He is behind the initiative to create a UK Risk Management Standard to, as he puts it: "ensure that when the term is used all practitioners are talking about the same thing". This has serious implications running through the whole corporate governance world, as well as that of risk management.

Another issue which is going to have a profound effect on all of us in coming years is the idea of new financial reporting languages. Charles Garthwaite provides a primer on the likely effects and advantages of XBRL when it is used by financial services companies. "In the brave new world of XBRL", he points out, "users of business information will be able to access it, understand it, download it, compare it and analyse it with a speed and degree of specificity that is currently not possible". The implications are enormous. And so, of course, are the implications of the latest moves to harmonise the rules which govern the way that information is presented. In our "Offshore" slot in this issue, David Damant, the revered president of European Analysts' Societies, provides an update on developments in that field. Never a man for an understatement, he points out that: "They are the most dramatic developments in accounting since the invention of double-entry bookkeeping more than 500 years ago".

Elsewhere in the issue we provide a complete primer on key issues in option valuation for the non-specialist, an assessment of the prospects and effects on the treasury team of outsourcing financial risk management, an analysis of the complex interplay between risk management and business regulation, and some advice from Alex Wolff, of SunGard Trading and Risk Systems, on two alternatives to valuing non-maturity deposits.

And to conclude this issue examining volatility we bring you the first of two exclusive extracts from Mark Haynes Daniell's latest book: World of Risk: Next Generation Strategy for a Volatile Era. There are few authors better placed to provide an overview of systems, risk and global strategic challenge.

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