The Psychology of Treasury

The series

Six volumes. One framework. One shelf.

Each volume stands alone and anchors its argument in a real institutional failure. Collected, they form a complete practitioner map of treasury risk — and a series worth owning in full.

Vol 1The Map
Volume 1

The Map

Why smart banks make catastrophic decisions

Banks rarely fail because their risk managers did not know the rules. They fail because the rules were applied inside institutions where other forces — political, reputational, competitive, psychological — made prudent action difficult, costly, or career-limiting. Volume 1 examines the anatomy of banking catastrophe through this lens: Northern Rock's liquidity crisis, Lehman's real-estate concentration, and a dozen less-famous disasters that share the same structural signature. The technical failures are unpacked. But the deeper argument is that understanding the psychology and sociology of how treasury decisions get made — and how warning signals get processed, downweighted, or ignored — is as important as understanding the balance sheet. This volume introduces the five-risk ALM framework that anchors the series and establishes the dual lens — technical precision and institutional psychology — that runs through all six volumes.

CASE STUDY · Northern Rock · Lehman

Companion tool: ALM Calculator (in delivery)
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Vol 2Liquidity in the Fog
Volume 2

Liquidity in the Fog

What banks ignore until the water is already rising

The thirty-day LCR is a ratio. What it measures — whether a bank can survive a stress event — is a human and institutional question before it is a mathematical one. Volume 2 examines how banks understand, model, and mismanage liquidity risk: why the standard metrics systematically underestimate tail risk, how the arrival of digital banking changed the physics of a deposit run (SVB's outflows arrived in hours, not the days the LCR model assumed), and why the banks that survived 2023 were not always the ones with the highest ratios. The companion simulation runs live liquidity stress tests across five scenarios — idiosyncratic, market-wide, combined, name shock, and reverse stress — and models a full contingency funding plan with fifteen levers across four tiers. The book argues that liquidity risk is the domain where the gap between the model and reality is widest, and where the psychological tendency to plan for the crisis you survived last time is most dangerous.

CASE STUDY · Silicon Valley Bank (2023)

Companion tool: Liquidity Stress & CFP Simulator (in delivery)
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Vol 3The Duration Trap
Volume 3

The Duration Trap

How banks bet on interest rates and lose

Interest rate risk in the banking book killed more value between 2021 and 2023 than any other risk category. It did so quietly, through the ordinary mechanics of duration mismatch, accelerated by a rate cycle that moved faster than most NMD models were calibrated to handle. Volume 3 examines the interest rate risk management process from both sides: the technical discipline of EVE measurement, BCBS stress scenarios, the supervisory outlier test, and the structural hedge decision — and the institutional dynamics that cause banks to consistently underestimate their duration exposure until it is too late to hedge cheaply. The companion optimiser models the full IRS hedge decision across all six BCBS scenarios, with live feasibility testing against EVE and NII limits. The book's central argument is that duration risk is not primarily a modelling problem. It is a governance problem — and the psychology of the ALCO room determines whether the right hedge gets executed at the right time.

CASE STUDY · Duration mismatch, 2022–23

Companion tool: IRRBB ALM Optimiser
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Vol 4The Deciding Room
Volume 4

The Deciding Room

How ALCOs get it right — and how yours can too

Every risk position that costs a bank money was, at some point, a decision that someone made or failed to make in a room. Volume 4 is about that room: the ALCO. It examines how the Asset and Liability Committee actually works — how agendas are set, how dissent is handled, how information is filtered before it reaches the table, how recommendations get shaped by what the room can bear to hear — and what distinguishes ALCOs that manage risk well from those that manage the appearance of managing risk. The case studies range from the boardrooms of institutions that survived 2008 with their balance sheets intact to the quieter failures where ALCOs met monthly, checked the boxes, and missed the accumulating exposure. The companion simulation models the discretionary hedge decision as an auditable, signal-driven process — the kind of governance structure the book argues should be standard in every treasury function.

CASE STUDY · Washington Mutual (2008) · TSB (2018) · anchor pending confirmation

Companion tool: Hedge Decision Engine
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Vol 5Model Blindness
Volume 5

Model Blindness

When maths feels safer than judgement

A model is a set of assumptions that has been given a number. In treasury risk management, the models — NMD models, prepayment models, stress-testing frameworks, credit spread risk models — are central to every major decision. Volume 5 examines what happens when practitioners mistake the map for the territory: when the sophistication of the model becomes a substitute for judgement, when assumptions that were reasonable when the model was built remain embedded in the governance framework long after the world they described has changed, and when the regulatory requirement to have a model creates an incentive to build one that passes rather than one that is right. The companion tool walks through every major NMD modelling choice — core/non-core split, behavioural WAM, deposit beta — and makes visible how much the EVE result depends on assumptions that cannot be independently verified. The book's argument is not that models are wrong. It is that model risk is inseparable from the institutional psychology of the people who build and use them.

CASE STUDY · JPMorgan London Whale (2012) · anchor pending confirmation

Companion tool: IRRBB Exercise Tool
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Vol 6Scanning the Horizon
Volume 6

Scanning the Horizon

Climate, technology and the risks your models cannot see

The risks that are hardest to manage are the ones that are not yet in the regulatory framework and not yet on the ALCO agenda. Volume 6 examines the frontier of treasury risk: climate transition risk and its balance-sheet implications, the interest-rate and liquidity effects of central bank digital currencies, the structural changes to deposit behaviour driven by digital-first banking, and the regulatory evolution that will reshape how banks measure and report IRRBB, CSRBB, and structural FX risk over the next decade. It also returns to the theme that runs through all six volumes: that the capacity to scan the horizon — to take seriously risks that have not yet materialised, that do not fit neatly into existing frameworks, and that are difficult to model — is ultimately a question of institutional culture and individual psychology, not technical capability. The companion tool provides a full technical reference for CSRBB, FTP mechanics, and the current state of the regulatory landscape across UK, EU, and US jurisdictions.

CASE STUDY · ECB climate stress test · BoE CBES (2022–23) · anchor pending confirmation

Companion tool: Technical Masterclass
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