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Norwest Corporation

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Submitted By Cinnyl91
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What difficulties do you suppose Norwest faces in creating a reliable “market value model”?
The goal of the asset and liability management process is to manage the structure of the balance sheet in order to provide the maximum acceptable levels of interest sensitivity risk and liquidity. The focal point of this process is the corporate ALCO. This committee forms and monitors policies governing investments, funding ssources, off-balance sheet commitments, overall interest-sensitivity risk, and liquidity. These policies form the framework for management of the asset and liability process at the corporate affiliate levels. The corporation’s interest-sensitivity position is managed as a function of balance sheet trends, asset opportunities, and interest rate expectations, and the corporation is normally well within policy risk limits at any given time.
Definition of Interest-Sensitivity Risk
Interest sensitivity risk is the risk that future changes in interest rates will reduce net interest income or the net market value of the corporation’s balance sheet. Two basic ways of defining interest rate risk in the financial services industry are commonly referred to as the accounting perspective and economic perspective. The corporation draws on aspects of each perspective to provide a more complete picture of interest rate risk than would be provided by either perspective alone.
The accounting perspective focuses on the risk reported net income over a particular time frame. Differences in the timing of interest rate repricing ( repricing risk or ‘gap’ risk) and changing market rate relationships (basis risk) determine the exposure of net income to changes in interest rates.
The economic perspective focuses on the risk to the market value of the corporation’s balance sheet, the net of which is referred to as the market value of balance sheet equity. The sensitivity of

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