liability management

economics

Written by

The Information Architects of Encyclopaedia Britannica

Last updated

July 19, 2026

Quick Summary

Liability management in economics refers to a bank's active strategy of managing both its assets and liabilities. Historically, banks relied on stable, localized deposits. However, in the 1960s and 70s, banks began developing new ways to acquire funds, such as repurchase agreements and negotiable certificates of deposit, allowing them to manage their liabilities more dynamically. This practice, known as liability management, enables banks to pursue profitable lending opportunities without being constrained by a lack of funds.1

A more recent approach, risk management, views banks as portfolios of risks. Bank managers aim to balance acceptable risk exposure with maximizing shareholder value. This involves calculating overall risk exposure and adjusting the bank's portfolio using various financial instruments, including derivatives, to optimize risk rather than simply avoid it.1

Summary created from Britannica articles using AI. AI can make mistakes, so verify using Britannica articles.

3 Britannica Sources

Ask Britannica AI about this topic

Britannica doesn't have a full article on this topic, so we've curated a list of our relevant coverage.

bank
Liability and risk management
…funds by banks, known as liability management, allows bankers to exploit profitable lending opportunities without being limited by a lack of funds for loans. Once liability management became an established practice in the United States, it quickly spread to Canada and the United Kingdom and eventually to banking systems worldwide.
Read More
…funds by banks, known as liability management, allows bankers to exploit profitable lending opportunities without being limited by a lack of funds for loans. Once liability management became an established practice in the United States, it quickly spread to Canada and the United Kingdom and eventually to banking systems worldwide.
Read More