A goal programming approach to bank asset management

Asset management in a commercial banking environment may be viewed as a process of resource allocation. The resources of a bank consist of the funds made available to the bank by its depositors, creditors and shareholders. These funds may be allocated among a variety of earning and non-earning assets. In carrying out this allocation, management must recognize and reconcile the various and often conflicting objectives and requirements of its depositors, its shareholders and the public agencies which regulate its activities. Given these multiple requirements and objectives the senior management of the bank must determine an allocation plan that will provide maximum safety and adequate liquidity for its depositors and an acceptable return for its shareholders. This thesis attempts to demonstrate how bank management can use a mathematical programming model to assist them in formulating short, intermediate and long range plans for the bank's asset management activities. It is shown that such a model is capable of dealing with the multiple goals which represent the bank's objectives and obligations and that the model can be formulated to incorporate the complex interdependencies which exist among the various asset management activities. The solution to the model will represent the most satisfactory course of action available to the bank in terms of its organizational goals.Business, Sauder School ofGraduat