CFO Focus: Be concerned if your ALCO conversations haven’t changed

Move from chasing “volume” to getting paid appropriately for all risks taken.

Financial institutions are in the business of taking calculated risks, but it is the responsibility of the asset/liability committee to measure and manage those risks—and to ensure the institution is compensated for taking them.

Consider the following:

  • The Federal Reserve’s Open Market Committee’s tightening strategy has already delivered 3.75% of rate hikes since March (interest rate risk)
  • Depositors are in the early stages of using and/or investing funds elsewhere (liquidity risk)
  • Indicators abound that recession is already underway (credit risk)

All three of these potential risks have now come into play at a record pace. The implication for institutions? ALCO and board discussions should be changing, strategies adjusting and internal feedback loops shortening up.

 

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