5 Tips To Evaluate Asset Liability Management

Considerations to help any credit union assess its ALM policies, procedures, and management practices.


Over the years, a number of credit unions have shared their asset liability management policies and checklists with Callahan & Associates, and there are several best practices that all of the documents have in common. Here are five that will help any credit union evaluate its own ALM policies, procedures, and management practices.

1. Set a clear and comprehensive policy.

This sounds simple enough, but effective asset liability management is vital to maintaining a healthy credit union.

General questions to ask when setting or updating a policy include:

  • What are the credit union’s overall goals and objectives? What are its investment objectives?
  • How will the credit union determine loan and share rates?
  • At what level does the board and management team want to keep key ratios? Is the answer different today than it was during the Great Recession?
  • What does the board delegate to management?

Don't reinvent the wheel. Get rolling on important initiatives using documents, policies, and templates borrowed from fellow credit unions. Pull them off the shelf and tailor them to the credit union's needs. Learn about Callahan's Executive Resource Center today.

2. Identify the responsible parties.

Credit unions typically identify responsible parties via position rather than naming an individuals; however, it is important to make it clear who has authority to take action on behalf of the credit union. It is also wise to ensure there is adequate back-up in case of turnover, illness, etc.

Questions credit union leaders might want to ask related to this topic include:

  • Who is on the Asset Liability Management Committee (ALCO)? Is it the same people who comprise senior management? Should these two teams differ?
  • Does ALCO set rates, within certain guidelines, or make recommendations to the board?
  • Who is responsible for reporting to the board? How often?
  • Who is authorized to make trades or borrow on behalf of the credit union?
  • Is there adequate back-up?

3. Determine what happens if objectives are not met.

Every executive hopes their team has made accurate projections and limited the institution’s risk. But what happens if one of the key thresholds is not achieved?

Whether it is a liquidity ratio, level of interest rate risk, or bond ratings that fall outside of a predetermined, clear acceptable level, the credit union should identify what it will do to address the missed objectives. This can be as simple as saying the management team or ALCO must create an action plan for this scenario that the board must approve.

4. Does the credit union have a liquidity contingency plan?

Building on the last point, what happens if the credit union does not meet its objectives? Does it have a liquidity contingency plan to help it adjust in different environments?

This contingency plan should include several different scenarios and will help the credit union ensure it is able to manage both routine and extraordinary fluctuations in liquidity.

5. How often does the credit union assess interest rate risk?

The management of interest rate risk (IRR) is a multi-tiered process. How often does the credit union consider each of the following questions and who is involved with:

  • Measuring the credit union’s interest rate risk position.
  • Controlling interest rate risk through policy constraints.
  • Developing strategy to manage interest rate risk in relation to the need for earnings.

These are only a handful of the questions a credit union should consider when reviewing its own ALM policies and ALCO structure.

Full versions of the sample documents that these summaries are based on, with identifying information removed, are available in Callahan’s Executive Resource Center for Leadership Clients. Not a Callahan Leadership Client yet? Contact us at support@callahan.com to learn more about the program.