management of bank liabilities, including deposits, to support lending activities and achieve balanced growth in earnings and bank assets without excessive liquidity risk. Liability management involves accepting money from depositors, and securing additional funds from other financial institutions, for use in lending and investing. Other tools of liability management are interest rate hedging against unexpected market moves, and maintaining a controlled gap between asset and liability maturities for controlled speculation on interest rate shifts.
In banking, active management of the liability side of the balance sheet began in the early 1960s when commercial banks began issuing negotiable certificates of deposit, which could be sold to other holders prior to maturity, to solicit funds from other institutions in the money market.
