facilitated this integrated approach to risk management. The additional roles of the ALM desk may include:   ■ using the VaR tool to assess risk exposure; ■ integrating market risk and credit risk; ■ using new risk-adjusted measures of return; AssetandLiabilityManagement     ■ optimizing portfolio return; ■ proactively managing the balance sheet; this includes giving direction on securitization of assets (removing them from the balance sheet), hedging credit exposure using credit derivatives, and actively enhanc- ing returns from the liquidity book, such as entering into security lend- ing and repo.   An expanded ALM function will by definition expand the role of the Treasury function and the ALCO. Specifically, this may result in the Trea- sury function becoming active "portfolio managers" of the banks book. The ALCO, traditionally composed of risk managers from across the bank as well as the senior member of the ALM desk or liquidity desk, is responsible for assisting the head of Treasury and the Chief Financial Officer in the risk management process. In order to fulfill the new enhanced function, the Treasurer will require a more strategic approach to his or her function, as many of the decisions with running the banks entire portfolio will be closely connected with the overall direction that the bank wishes to take. These are board-level decisions.       LIQUIDITY AND INTEREST-RATE RISK   Liquidity risk arises because a banks portfolio will consist of assets and liabilities with different sizes and maturities. When assets are greater than resources from operations, a funding gap will exist which needs to be sourced in the wholesale market. When the opposite occurs, the excess resources must be invested in the market. The differences between the assets and liabilities is called the liquidity gap. For example if a bank has long-term commitments that have arisen from its dealings and its resources are exceeded by these commitments, and have a shorter matu- rity, there is both an immediate and a future deficit. The liquidity risk for the bank is that, at any time, there are not enough resources (or funds) available in the market to balance the assets. Liquidity management has several objectives; possibly the most important is to ensure that deficits can be funded under all foreseen cir-