An asset-liability committee is what?

A supervisory body known as an asset-liability committee (ALCO), often called surplus management, coordinates the management of assets and liabilities to generate acceptable returns. Executives may control net earnings by controlling a company’s assets and liabilities, resulting in higher stock prices.

Asset-Liability Committees (ALCO): An Overview

An organization’s ALCO at the board or management level offers crucial management information systems (MIS) and supervision for efficiently assessing both on- and off-balance-sheet risk. Members consider interest rate risk and liquidity while designing a bank’s operational strategy.

Maintaining enough liquidity while controlling the bank’s spread between interest revenue and expenses is one of ALCO’s objectives. Members also take operational risk and investments into account.

ALCO meetings should be held at least four times each year. Managing market risk tolerances, creating adequate MIS, and examining and approving the bank’s liquidity and funds management policy at least once a year are all standard member tasks.

Members also look at the company’s immediate funding needs and where to get it, make and manage a plan for emergency funding, and figure out how vulnerable the company is to liquidity risk in bad situations with a range of likelihoods and levels of severity.

Particular Considerations

The goals, objectives, and risk tolerances for operating standards the board sets should be reflected in an ALCO’s strategies, policies, and procedures. Strategies should specify the institution’s tolerance for liquidity risk and the degree to which key aspects of fund management are centrally controlled or outsourced.

Strategies should also discuss how important it is to use asset liquidity, liabilities, and operating cash flows to meet daily and unexpected funding needs. A good asset-liability committee example

The executive board of Alfa Bank appoints the ALCO, which consists of seven or more members who are eligible to vote for a one-year term. The bank’s executive board elects the ALCO chair, who oversees the ALCO. By order of the bank executive board, ALCO members without the power to vote are chosen among bank experts and managers and appointed for a year upon presentation to the ALCO chair.

ALCO meetings for the bank are normally conducted every two weeks. If more meetings are required, they can be planned. If more than half of the voting members are present at the committee meeting, the ALCO can decide on issues for discussion. When more than half of the members eligible to vote are present and support the resolution, the resolution is said to have passed. All bank personnel are required to abide by ALCO’s resolutions.

Conclusion

• Asset-liability committees (ALCOs) regulate how a company’s or bank’s assets and liabilities are managed.
• An organization’s ALCO at the board or management level offers crucial management information systems (MIS) and supervision for efficiently assessing both on- and off-balance-sheet risk.
• The goals, objectives, and risk tolerances for operating standards the board sets should be reflected in an ALCO’s strategies, policies, and procedures.
• Maintaining enough liquidity while controlling the bank’s spread between interest revenue and expenses is one of ALCO’s objectives.