Learning Objectives:

  • Understand the role and responsibilities of the ALCO.

  • Identify the key members of the ALCO and their roles.

  • Explain the ALCO governance framework.

2.1 The Role of ALCO

The Asset-Liability Committee (ALCO) is the primary governance body for ALM. As the BTRM course notes, ALCO is responsible for setting liquidity policies, monitoring risk exposures, and approving funding strategies . The BSA training course covers “ALCO monitoring and what to expect in an ALCO pack” . The BTRM course also covers “ALCO MI pack” and “ALCO governance” as key elements of bank risk management .

Key Responsibilities of ALCO:

  • Setting liquidity and interest rate risk policies.

  • Reviewing and approving risk limits.

  • Monitoring risk exposures and compliance with limits.

  • Reviewing the bank’s funding strategy.

  • Approving hedging strategies.

  • Reporting to the board on risk exposures and ALM performance.

2.2 ALCO Membership

The BSA course identifies key committees and their responsibilities :

  • ALCO: Manages balance sheet risks, including liquidity and interest rate risk.

  • Risk Committee: Oversees the broader risk management framework.

  • Board: Provides ultimate oversight and approves risk appetite.

  • Executive Committee (EXCO): Manages the day-to-day operations of the bank.

2.3 ALCO Meeting Pack

The ALCO meeting pack typically includes :

  • Liquidity Position: Current and projected liquidity position, including LCR and NSFR.

  • Interest Rate Position: Gap reports, duration analysis, and earnings at risk.

  • Funding Position: Deposit growth, wholesale funding usage, and funding concentration.

  • Capital Position: Capital adequacy ratios and capital projections.

  • Risk Limit Compliance: Reports on compliance with risk limits.

  • Stress Test Results: Results of liquidity and interest rate stress tests.

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