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ALCOs Can Do More than Set Rates
Thursday, October 29, 2015 6:25 AM

Let’s face it; some credit union asset-liability committee (ALCO) meetings can be a drag. The "culprits" for this drag tend to be overly detailed, static in content, non-strategic, backward-looking, and, frankly, uninspiring. But an ALCO is the “most important committee in the credit union,” according to Mike Sims, senior advisor with Catalyst Strategic Solutions. ALCOs have the opportunity to shape credit union strategy by improving the process that guides their meetings.

"Traditionally, ALCOs are expected to perform certain roles, such as reviewing the credit union’s financial and credit performance and investments, setting rates, updating policies, documenting measurement of risk, and making recommendations to the boards of directors," Sims said during his recent presentation at Catalyst Corporate’s 38th annual Economic Forum. "These customary duties are vitally important, but with the proper process in place, ALCOs can play an even more crucial role in influencing the credit union’s overall strategic direction."

Sims’ presentation on maximizing the ALCO process was directed to credit union volunteers and management. According to Sims, a strong ALCO process includes 10 key components:

  1. Begins each year with an ALCO meeting roadmap. Develop an agenda for the whole year. Vary the content from year to year, as static content may prevent the credit union from responding to changing economic and regulatory conditions. See Sample ALCO Calendar below.
  2. Turns ALM into a strategic advantage. Understand and use ALM reports—beyond placing them in a binder for regulators—to shape strategy. Incorporate ALM processes into credit union operational practices, utilizing risk management versus risk avoidance.
  3. Establishes and reinforces an organizational risk tolerance. Risk strategy should be set by the ALCO, rather than a certain individual. The ALCO should own ALM model assumptions, stay disciplined and adhere to the ALCO process. Once a year, the ALCO should review the process for improvement.
  4. Is the common thread between budgeting and strategic planning. ALCO should enforce consistency between budgeting and the strategic planning process. For example, how can you budget operating expenses without a sense for appropriate margins to cover them, and how can you determine margins without forecasting loan and investment rates? The ALCO should benchmark progress and ensure the credit union hits its objectives.
  5. Balances ALCO “nuts and bolts” with strategic content. Financial markets are more complicated and intertwined than ever, and credit union strategies will have to become more fluid and opportunistic in nature. Decide where you want to be on the risk spectrum and consider opportunities for growth.
  6. Embraces “what if” simulations. Project and prepare for the future. Add “what if” simulations to the ALCO agenda quarterly: interest rate risk, liquidity, interest rates/economy, balance sheet composition, mergers and acquisitions, products and promotions, competition, other external factors.
  7. Always considers rates and the economy. Ensure that ALCO meetings don’t get bogged down with discussion of local rates and budgeting. Consistently allocate time to discuss developments in interest rates and the economy.
  8. Educates staff, management, and board. Regulators want to see more management and board education; use the ALCO process as a developmental/educational forum. Credit unions typically run lean and have relatively thin “bench strength.” Provide relevant training – CUNA Management School, bond education, etc. Expand participation in ALCO so that more people in the organization benefit from the educational experience and become attuned to the decision-making processes at the credit union. Bring in vendors to vet new products, services and investments.
  9. Challenges the status quo. Regulators expect questions. Challenge the assumptions, challenge the trends; ALCO participants should ask difficult questions, and they should be documented in the minutes.
  10. Maintains thorough meeting minutes. What were the thought processes behind ALCO meeting decisions? Document them in the minutes. Capture strategy-oriented discussions, along with action items. Include benchmarks. Show that the ALCO reviewed compliance with policy limits and contingency plans, if necessary. Be thorough. As far as the regulators are concerned, if it’s not in the minutes, it didn’t happen.

Handouts for Sims' presentation, and other Economic Forum presentations, are available under Learning Center/Conferences at

Sample ALCO Calendar

About Catalyst Corporate

Catalyst Corporate is an endorsed business partner of Credit Union Resources, and wholesale, cooperative credit union with a national field of membership headquartered in Plano, Texas. Catalyst Corporate and its wholly-owned Catalyst Strategic Solutions subsidiary offer more than 1,500 credit unions competitively priced payment, investment and liquidity services. To learn more visit Catalyst Corporate.