[Verse 1] Picture a bank as a giant seesaw Assets on left, deposits on right Mortgages, bonds, and commercial loans raw Balance the weights through day into night When rates climb up, your bond values drop While customer deposits demand more pay [Chorus] A-L-M keeps the balance clean Asset-Liability-Management machine Match your durations, watch the spread Interest rate gaps can leave you dead Capital cushions absorb the shock ALM is your financial rock [Verse 2] Duration measures price sensitivity When yields shift one percent up or down A bond with duration of three means roughly Three percent loss when rates come around Asset duration minus liability duration Equals your gap exposure calculation [Chorus] A-L-M keeps the balance clean Asset-Liability-Management machine Match your durations, watch the spread Interest rate gaps can leave you dead Capital cushions absorb the shock ALM is your financial rock [Bridge] Basel rules demand you hold Tier one capital, risk-weighted and bold Eight percent minimum, but that's just the floor Regulators want banks to hold much more Credit risk weights from zero to one-fifty Make your capital planning quite shifty [Verse 3] Repricing frequency tells the tale Fixed rate assets versus floating debt When the Fed moves rates, who will prevail? The bank with mismatches will surely fret Hedging with swaps can neutralize risk Turn floating to fixed with a contract brisk [Chorus] A-L-M keeps the balance clean Asset-Liability-Management machine Match your durations, watch the spread Interest rate gaps can leave you dead Capital cushions absorb the shock ALM is your financial rock [Outro] Regulatory capital shapes each choice Investment committees must hear its voice Risk and return in harmony dance ALM gives your portfolio its fighting chance
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