Liquidity Crunch Research Articles

Management Reporting System: A New Marriage Between Management and Financial Data Through Management Science

This paper reports a significant combination of a linear-programming model of the Liberty, a communication system which visually depicts the model's output by electronically-produced graphics, and a planning concept which has produced a new, more sensitive approach to asset/liability management of a banking organization in an increasingly volatile financial environment. During the past decade, banks generally have increased leverage and reduced liquidity, thereby making them increasingly vulnerable to interest rate volatility. The Management Reporting System (MRS) described is a practical and unique approach in marrying the various sophisticated disciplines necessary for effective management given such constraints. Liberty's Chairman credited the system with 25¢ per share of the 1973 Operating Earnings and noted that the mix of bank assets and liabilities now can be guided by precise, automated facts, rather than by mere “seat-of-the-pants” instinct. In its 1972 Annual Report, the Corporation stated its 1973 earning's goal “because of the reliable way our Management Reporting System has functioned in 1972.” That objective was met even though economic conditions were vastly different than assumed. The MRS's use permitted the timely adjustments necessary to manage earnings and achieve the publicly stated objective. The paper also explores a more realistic and sensitive approach to liquidity management developed at Liberty. Its impact and value was not only demonstrated during the 1974 liquidity crunch but by its adoption at several of the leading banks across the United States.