The Principles of Banking

Chapter 10

The ALCO: Terms of Reference and Treasury Operating Model

In the previous chapter we introduced the Asset–Liability Committee or ALCO, the most important operating committee in a bank. In this chapter we consider further the governance aspects of the ALCO, and a basic reporting pack that is part of ALCO MI reporting. We review a business best practice approach to ALCO governance in a group banking structure, for a bank that operates across multiple legal entities and country jurisdictions. We also describe the organisation of a business best-practice Treasury function.

A presentation summary of the ALCO role and policy is available at the Wiley website (see Chapter 19 for details). This also holds examples of ALCO reporting packs.

The ALCO Governance Model

It is important that the ALCO function be set up and run with a governance structure and authority that befits its importance. For this reason, its terms of reference (ToR) must be articulated clearly to all bank management. Regular attendance by members of the ALCO must also be stressed. A common point of discussion is the frequency with which the ALCO should meet. At the minimum it should meet once every four weeks, ideally at the same time and on the same day each month. This establishes a pattern and ensures that the meeting is embedded in the firm's risk and management culture. If for any reason a discussion is required ahead of the next scheduled meeting, for example during periods of market stress or because ...