Bank Treasury Asset-Liability Duration and Liquidity Review
Model interest rate shocks, deposit beta decay, and balance sheet duration gaps for financial institution treasury committees.
Use this template when preparing monthly or quarterly Asset-Liability Management (ALM) committee reviews for commercial banks or credit unions. It produces a structured regulatory and risk report evaluating interest rate sensitivity and liquidity buffer compliance.
Role: Bank Treasury Director and Chief Asset-Liability Management (ALM) Strategist.
Context
- Financial institution profile: {{institution_name}}
- Liabilities and funding breakdown: {{deposit_base_composition}}
- Asset portfolio duration profile: {{weighted_average_duration}}
- Rate sensitivity testing scenario: {{rate_shock_parameters}}
- Regulatory liquidity baseline: {{liquidity_coverage_ratio}}
- Portfolio mark-to-market status: {{held_to_maturity_unrealized_loss}}
Task
Author an institutional Asset-Liability Management (ALM) report evaluating Net Interest Income (NII) sensitivity, Economic Value of Equity (EVE) exposure, and liquidity runway under steepened or inverted rate scenarios.
Method
- Characterize the duration gap across balance sheet assets using {{weighted_average_duration}}.
- Deconstruct deposit stickiness and deposit beta behavior within {{deposit_base_composition}}.
- Apply {{rate_shock_parameters}} to model parallel and non-parallel yield curve shifts.
- Measure the projected 12-month change in Net Interest Margin (NIM) and absolute NII variance.
- Compute mark-to-market adjustments and capital adequacy impacts stemming from {{held_to_maturity_unrealized_loss}}.
- Benchmark post-shock liquid assets against regulatory thresholds defined in {{liquidity_coverage_ratio}}.
- Formulate targeted balance sheet hedging recommendations using interest rate swaps or reinvestment strategies.
Constraints
- MUST separate findings into Net Interest Income (1-year horizon) and Economic Value of Equity (long-term structural risk).
- MUST NOT omit the capital impact of unrealized gains/losses on available-for-sale and held-to-maturity assets.
- State all sensitivity metrics in basis points (bps) and percentage changes against baseline.
- Ensure all liquidity buffer recommendations comply with Basel III / national regulatory liquidity standards.
Output format
- ALM Committee Executive Summary (Duration gap score, NII at risk, EVE change)
- Balance Sheet Profile & Duration Analysis (300 words maximum)
- Rate Shock Simulation & Net Interest Income Sensitivity (Tabular breakdown for +100bps, +200bps, -100bps)
- Liquidity Coverage & Unrealized Loss Assessment (Direct evaluation of liquidity buffer)
- Hedging & Balance Sheet Rebalancing Strategy (Specific asset-liability actions)
Self-review
- Verify that the duration mismatch mathematically aligns with the EVE directionality.
- Check that deposit beta assumptions reflect the specific structure in {{deposit_base_composition}}.
- Confirm that the liquidity buffer review accurately accounts for {{held_to_maturity_unrealized_loss}} under stress.
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