The Principles of Banking, 2nd Edition

CHAPTER 8Bank Treasury Operating Model¹

Abstract

There is more than one way to organise the Treasury function in a bank. There is no one right way, however, and what works well in one bank may not be the most appropriate framework for another bank. We review the various approaches that can be considered and also describe an operating model that would be suitable for most commercial banks irrespective of their jurisdiction. The principal areas for review are how and where the ALM function is set up and whether the Treasury department is given an explicit P&L target. There are additional considerations when the bank is part of a wider group entity.

Given that the ALM function in a bank is concerned with internal balance sheet management but also cuts across the external cash management requirements, it is unsurprising that different arguments can be put as to where exactly it should sit in the bank's organisation structure and operating model. This is a very good example of “There is no one-size-fits-all model”. A bank must decide what is the most effective and appropriate operating model for ALM and Treasury. In this chapter we present some alternative approaches that can be considered, and the arguments for and against. We also present our recommended approach suitable for most commercial banks.

LOCATING THE ALM FUNCTION

There are arguments for and against including the ALM desk into one or another segment of the bank's organisational framework. Before the analysis of the ...