ALCO
Definition
Asset and Liability Management Committee. The senior governance body responsible for balance sheet risk management.
What This Actually Means
The committee where treasury, finance, risk, and business heads come together to make decisions about interest rate risk, liquidity, funding, and capital. Typically chaired by the CFO or CRO. This is where hedge strategies get approved and risk appetite gets set.
Where It Matters
ALCO effectiveness varies enormously between banks. Good ALCOs challenge assumptions, interrogate model outputs, and make active hedging decisions. Weak ALCOs rubber-stamp treasury proposals and spend too long on backward-looking MI. Regulators assess ALCO governance quality during SREP.
The senior committee that governs balance sheet risk — where hedging decisions get made.