Define ALCO and its formation structure. Discuss the role and responsibility of ALCO for performing leading of a bank. Or what is ALCO? What are the major responsibilities of ALCO

 Asset and Liability Committee (ALCO): The Asset and Liability Committee (ALCO) is responsible for balance sheet risk management. Managing the assets and liabilities to ensure the maximum level of structural balance sheet stability and optimum profitability is an important responsibility of the ALCO.

ALCO is the group primarily responsible for the asset liability and risk management of a bank ALCO's job is to devise broad strategies for handling a bank's many competing needs over the long run and to monitor and manage its interrelated risk exposures on a daily basis.

As a consequence, the ALCO is the focal point for coordinating the bank's many activities to accomplish its operating objectives formation of ALCO. Asset-Liability Management Committee (ALCO) is the core unit of a financial institution. So, it is the basic need to form an ALCO to balancing the Asset-Liability Management.

The ALCO will set a standard limit on borrowing in the short-term markets and lending long-term instruments that controls over the financial risks and external events that may affect the bank's asset-liabilities position. It manages the risks to acceptable level by monitoring and sets the competitive prices between assets and liabilities to maintain the liquidity position of the company. Without an ALCO, a commercial bank may lose all positive financial opportunities and the bank must be faced by different types risk as like as financial crisis. So that it shouts to be formed a ALCO for each commercial bank to manage the vulnerable financial position.

 As per BB guideline, the committee consists of the following key personnel of a bank:

- Chief Executive Officer/Managing Director - Head of Treasury/Central Accounts Department

- Head of Finance

- Head of Corporate Banking

-Head of Consumer Banking

- Head of Credit

- Chief Operating Officer/Head of Operations

 The committee calls for a meeting once every month to set and review strategies

Role and Responsibilities of ALCO: According to the Risk Management Guidelines issued in February 2012 by Bangladesh Bank, the major responsibilities of ALCO are as follows

o   Ensure that the bank's measurement and reporting systems accurately convey the degrees of liquidity and market risk.

o   Monitor the structure and composition of bank's assets and liabilities and identify balance sheet management issues that are leading to underperformance,

o   Decide on the major aspects of the balance sheet structure, such as maturity and currency mix of assets and liabilities, mix of wholesale versus retail funding deposit mix, etc.

o   Decide on how to respond to significant actual and expected increases and decreases in required funding.

o   Review maturity profile and mix of assets and liabilities.

o   To comply with the local central bank regulations in respect of the bank's statutory obligations as well as thorough understanding of the risk elements involved with the business.

o   Understanding of the market dynamics i.e. competition, potential target markets etc.

o   Provide inputs to the Treasurer regarding market views and update the balance sheet movement.

o   Articulate interest rate view of the bank and decide on balance sheet strategy.

o   Approve and periodically review the transfer pricing policy of the bank.

o   Evaluate market risk involved in launching new products.

o   Review deposit-pricing strategy and review liquidity contingency plan for the bank.