Before any ALM model can be understood, the balance sheet it models must be understood. This module is a structured tour of what a large US bank balance sheet actually looks like — not as an accounting document but as a collection of rate-sensitive cash flow streams with different maturities, different repricing frequencies, and different behavioral characteristics.
Assets: loans in their various forms, investment securities, cash and reserves. Liabilities: deposits of every type, wholesale funding, long-term debt. Each category has a distinct repricing profile — and the mismatch between asset repricing and liability repricing is the fundamental source of interest rate risk that ALM exists to manage.
By the end of this module, when someone in an ALCO meeting says the book is asset-sensitive or we are running long duration, you will know exactly what that means, why it matters, and what it implies for NIM under different rate scenarios.
The balance sheet as cash flow streams
The standard accounting balance sheet shows categories: loans, securities, deposits, long-term debt. For ALM, the more useful framing is a collection of future cash flow streams — each asset generating interest and principal inflows, each liability requiring interest and principal outflows, at different points in time and at different rates. The ALM team needs to understand the timing and rate sensitivity of those cash flows.
The asset side
Commercial and industrial loans
C&I loans are often floating rate — priced at SOFR or Prime plus a spread, resetting quarterly or monthly. When the Fed raises rates, C&I loan yields move within weeks. JPMorgan's commercial banking segment saw loan yields rise sharply through 2022 and 2023 as floating rates reset to 7–9%, contributing meaningfully to NII growth from $44 billion in 2021 to $65 billion in 2023.
Commercial real estate
CRE loans are a mix of floating and fixed rate, typically 3–7 year terms with balloon payments. The fixed-rate portion carries duration risk — a 5-year fixed CRE loan originated at 4% in 2021 was still earning 4% in 2023 when comparable new originations were pricing at 7–8%. Wells Fargo disclosed detailed CRE repricing schedules quarterly to help investors understand how quickly the portfolio would reset to market rates.
Residential mortgages
The longest-duration, most complex asset on a bank balance sheet. A 30-year fixed-rate mortgage originated at 3% in 2021 will continue paying 3% for 30 years unless the borrower refinances or sells. The bank cannot force repricing. This creates multi-year NIM drag when rates rise. Prepayment risk adds complexity — when rates fall, borrowers refinance and the bank must reinvest at lower rates at the worst possible time.
Consumer loans and credit cards
Mostly floating rate with relatively short durations. Credit card balances reprice quickly. Capital One, which completed its Discover Financial acquisition in 2025, carries a massive card receivable book that reprices faster than most asset types. Auto loans are typically fixed rate with 4–6 year terms — a medium-duration fixed asset that creates meaningful duration exposure for consumer lenders.
Investment securities
Typically 15–30% of total assets at a large bank. The key distinction is between available-for-sale (AFS) securities — marked to market quarterly, unrealized gains and losses flowing through AOCI directly into book equity — and held-to-maturity (HTM) securities, carried at amortized cost. The ALM team uses the securities portfolio as an active tool to adjust the overall rate sensitivity of the balance sheet — extending duration to reduce asset sensitivity, or shortening it to reduce interest rate risk.
Cash and reserves
Banks hold excess reserves as deposits at the Federal Reserve, earning the IORB rate. In 2021, excess reserves in the US banking system exceeded $2.5 trillion. When IORB was 5.40% in 2023, the interest income from reserve balances was a material NII contributor for JPMorgan, which held hundreds of billions at the Fed.
The liability side
Noninterest-bearing demand deposits
Checking accounts that pay zero interest — the most valuable liability a retail bank holds. Free funding that requires no interest outflow. Their value increases as interest rates rise because the bank deploys free funding into assets earning more.
The management challenge is migration. Bank of America's noninterest-bearing deposit percentage fell from approximately 35% of total deposits in early 2022 to roughly 25% by 2024 as depositors moved balances to higher-yielding accounts — a significant NIM headwind.
Interest-bearing savings and money market accounts
These can be repriced at any time. At a branch bank with relationship stickiness, deposit betas are lower. At a digital bank with no branches and rate-seeking customers, betas approach 1.0 — the bank must pass through nearly every basis point of Fed hikes to stay competitive.
Certificates of deposit
Fixed-rate time deposits — typically 3 months to 5 years. They do not reprice until maturity, creating a predictable repricing schedule. In 2022 and 2023, banks promoted CD specials to attract deposits at elevated rates. Those CDs are now maturing through 2025, which is why deposit costs are declining even as the Fed has only cut modestly.
Federal Home Loan Bank advances
FHLB advances are collateralized loans available in various maturities, priced off SOFR or fixed rates. During the March 2023 banking stress, First Republic borrowed over $100 billion from the FHLB system — the largest emergency FHLB drawdown in history — to fund deposit outflows before failing anyway. The FHLB is a liquidity source, not a solvency solution.
Senior unsecured bonds and TLAC
Term market debt, typically 3–10 years at issuance. Global systemically important banks also maintain Total Loss-Absorbing Capacity — instruments that can be written down in a resolution scenario. Managing the composition and maturity of TLAC-eligible debt is a distinct ALM responsibility at the largest US institutions.
The mismatch: where interest rate risk lives
The fundamental source of interest rate risk is the difference between how quickly assets reprice and how quickly liabilities reprice when rates change.
Consider a bank with a 30-year fixed-rate mortgage portfolio funded by online savings accounts. Rates rise 200 basis points. Mortgage yields stay flat. Savings rates rise 150 basis points within 90 days to stay competitive. The spread compresses by 150 basis points. NIM falls.
Reverse: rates fall 200 basis points. Savings rates drop 150 basis points. Mortgage yields stay flat. The spread widens. NIM expands.
This asymmetry — fixed-rate assets with variable-rate liabilities — is liability sensitivity. Managing this mismatch, deciding how much to accept, and using hedges and portfolio composition to adjust it, is what ALM does.