An Application of Linear Programming to Bank Financial Planning

Abstract

The fundamental issues facing senior bank management revolve around the structuring of a bank's balance sheet. Since yields can be assigned to each asset category, and costs to each liability category, the profits of the bank can be represented in terms of its balance sheet position. Thus, a bank's financial goal of maximizing returns to shareholders through maximizing profits can be translated into the operational goal of achieving some target end-of-period balance sheet position producing the greatest profits. This paper describes a successful application of linear programming for assisting the management of Central Carolina Bank and Trust Company (CCB) in their financial planning process.