Why psychology is overlooked in treasury
Treasury management is taught as a discipline of numbers. The frameworks are quantitative: duration gaps, basis point values, LCR ratios, EVE sensitivities. The regulation is quantitative. The models are quantitative. And yet the decisions that have cost banks the most — Northern Rock's continued reliance on wholesale funding through August 2007, Lehman's doubling down on commercial real estate, Silicon Valley Bank's decision not to hedge its bond portfolio — were not failures of calculation. The numbers were available. The decisions were made by people under institutional pressure, facing cognitive shortcuts, bounded by what their ALCO culture permitted them to say out loud.
This is the gap. The quantitative frameworks are taught in every CFA curriculum and every bank training programme. The psychological and institutional forces that determine whether those frameworks are actually applied — or quietly set aside when they produce inconvenient answers — are taught almost nowhere. There is no module on the sociology of the ALCO room. There is no chapter on why models that produce comfortable outputs survive and models that produce uncomfortable ones get quietly recalibrated. There is no framework for understanding why smart, well-qualified people build consensus around positions that turn out, in retrospect, to have been obviously wrong.
The Psychology of Treasury starts from the premise that this gap is not a curiosity. It is the central challenge of modern treasury risk management.
What the existing literature misses
The practitioner literature on ALM is extensive and technically sophisticated. Choudhry on bank asset and liability management, McIlroy on treasury risk, the EBA's own guidelines and stress-testing frameworks — the technical foundation is solid. What it does not address is the layer between the model and the decision.
Academic behavioural finance has produced a rich body of work on cognitive bias, loss aversion, and institutional herding. But it largely operates at the level of individual investors and market prices. It does not engage with the specific institutional dynamics of a bank treasury function: the political economy of the ALCO, the career incentives of the treasurer who knows a hedge is expensive and knows the CFO does not want to hear it, the way stress scenarios get designed around thresholds the bank will comfortably pass, the subtle pressure to keep NIM up when the Board is watching.
There is also a gap in how crisis literature is written. The post-mortems on 2008, on the 2023 US regional bank failures, on Credit Suisse, tend to focus on what went wrong technically. They identify the position, the exposure, the model failure. They are less good at explaining why the people who could see the exposure chose not to act on it — and what that means for how treasury teams should be structured, supervised, and trained.
What this series does differently
The Psychology of Treasury brings these two bodies of knowledge together in the form practitioners can actually use. Each volume takes a specific risk domain — liquidity, interest rate risk, ALM governance, model risk, regulatory horizon-scanning — and examines it at three levels simultaneously: the technical framework, the institutional dynamics of how real ALCOs make decisions about it, and the psychological layer that shapes those decisions and how they can be recognised and countered.
The six-volume structure is not arbitrary. Each volume stands alone as a reference on its risk domain. Together they form a complete framework for the modern treasury professional: not just a practitioner who can run the models, but one who understands why the models sometimes fail to protect the institution they are supposed to serve — and what to do about it.
The simulation tools that accompany each volume are built to the same standard. They are not teaching toys. They are the same frameworks Svetlana uses in practice and in programmes for Risk.net, marcus evans, and the UK's leading financial institutions — made accessible for any practitioner with a browser.