Introduction to ALCO (Asset-liability committee)
- An asset-liability committee (ALCO) is a supervisory group that checks the management of liabilities and assets and liabilities to ensure that the company is earning adequate returns.
- By identifying and safeguarding a company's assets and liabilities, executives can influence net earnings, and this can lead to better stock prices.
Understanding Asset-Liability Committees (ALCO)
An ALCO at the board or at the management level presents essential management information systems (MIS) as well as oversight for effectively evaluating on and off-balance-sheet risk for any institution. Members include interest rate risk and liquidity consideration into a bank's operating model.
One of ALCO's goals is ensuring adequate liquidity. They do so while maintaining the interest income as well as the interest expense.
Member responsibilities typically involve approving the bank's liquidity and funds management policy at least yearly, managing market risk tolerances, and establishing appropriate MIS.
Duties And Responsibilities Of The ALCO
ALCO oversees many policies like:
Risk diversification Liquidity management policy Capital markets requirements policy A bank's trading policy, including diversification within the type of instruments and currency Capital adequacy and the risk policy Interest rate and the liquidity policy Benchmarking performance indicators