Asset/Liability Committee (ALCO)
A risk management committee in a bank that evaluates the risk associated with the bank’s assets and liabilities. It manages interest rate risk while ensuring adequate returns and liquidity.
Functions of ALCO
- To ensure the efficient implementation of balance sheet management policies as directed by GALCO (Group ALCO) and RALCO (Regional ALCO).
- To receive and review reports on liquidity, market risk and capital management.
- To identify balance sheet management issues that are leading to under-performance and refer those that cannot be resolved locally to Regional ALCO.
- To review deposit-pricing strategy for the local market.
- Ensures sustainable funding for the balance sheet.
- Giving directions to the ALM team on the interest rate risk.
ALCO delegates the daily management of liquidity risk and interest rate risk to ALM.
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In carrying out its duties, ALCO should pay particular attention to the following points:
- Ensure compliance with banks Group policy and regulatory requirements.
- Set local targets and review assumptions used for forecasting cashflows.
- Review and approve contingency plans for liquidity and realisability assumptions.
- Review and manage concentration risk arising from both borrowers and depositors.
- Ensure business activity is consistent with the structural integrity of the balance sheet, including capital consumption.
- Ensure that risks inherent in local payment systems are evaluated, quantified and managed.
- Review requirements set by external regulators both locally and on a Group basis (bank).
- Establish a rate setting mechanism for all published rates on assets and liabilities with the objective of ensuring that rate risk is effectively transferred to banks treasury units wherever possible.
- Review Price risk profiles of the balance sheet, especially exposures relating to nil rate or administered rate products that give rise to basis risk.
- Review hedging of remittable profits.