Unraveling the Complexities of Achieving the Optimal Balance Sheet
Every financial institution wants to create and maintain an optimal balance sheet – a mix of assets and liabilities that maximize returns while mitigating risks. However, determining the optimal balance sheet is a complex process. There is no one right answer. Even when considering the same institution, what is optimal today might not be optimal tomorrow. Financial markets are always changing and allocating capital that is tied up for 5-10 years while the economy changes can impact the strategic decisions of a depository. Institutions of all sizes face challenges when trying to attain the optimal balance sheet. Here are a few of the most common challenges we see:• Imperfect information - obtaining accurate data regarding market conditions, borrower profiles, and asset quality is challengin...