Transform Your Bank’s ALCO from a Cost Center to a Profit Center

An Associate Member By Mary Ellen Biery, Sageworks asset liability commi ee (ALCO)? A

If the idea seems preposterous, it could be that your ALCO could benefit from a new approach, according to Matt Pieniazek, president of Darling Consulting Group. If that’s the case, your institu- tion’s ALCO could also be leaving valuable earn- ings on the table, says Pieniazek, who regularly leads conference sessions on developing more effective ALCOs.

Valuable Strategy Incubator More bankers and lenders want to join the ALCO when leaders are able to transform the committee from a backward-looking, reporting-focused cost center to a group that is developing important pro t-driving strate- gies for the entire  nancial institution, Pieniazek said recently.

“With well-functioning ALCOs, everyone wants to be on that committee,” he said.

An ALCO can be a valuable incubator for effective lending strategies, in particular, Pieniazek said. “A lot of lenders don’t get excited about attending ALCO meetings because they don’t feel that it bene ts them greatly, and that’s because there’s no real focus on strategy” during many existing ALCO meetings, he

re lenders and retail bankers lining up to join your  nancial ins tu on’s

said. Working on the ALCO provides opportunities to look at lending through different lenses, which in turn can make good lenders great.

ALCOs are responsible for the coordinated over- sight of balance sheet risk management, but they often tend to be more reporting mechanisms than anything else — performing “regulatory, check-the- box type stuff,” Pieniazek said. “In effect, the ALCO ends up being focused on a reporting of the risk profile and as a result, it’s just a cost center — it provides no value other than the reporting informa- tion. Most ALCOs stop where most value begins, which is strategy development.”

However, with the right expectations established of the ALCO and its members, and with open-minded attendees and the facilitation of discussion, meet- ings can be transformed he said. “You can migrate the focus and dialogue to be 10 to 15 percent of an update on where we are from risk and 80 to 90 percent focused on strategy,” Pieniazek said. “All of a sudden, you engage and incent and get people excited from all around the bank.”

Making Good Lenders Great Pieniazek has seen excellent lending strategies sug- gested by non-lenders and similarly, great retail strate- gies offered up by lenders. “What I like to say is that the most successful ALCOs are those where people check their egos at the door and attend with open minds,” he said. “If you facilitate an environment of collabora- tion on loan product structure and pricing, investment strategy, deposit pricing and products, and overall


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