What Constitutes a Good Treasury and ALM Function?

What are the features of a good ALM process?

Risk identification, measurement and presentation are so important, otherwise you may be looking at the wrong things and balance sheet optimisation will be an elusive concept forever.

Good ALM will support, drive and influence the business and help it to do the right things at the right time at the right prices. Treasury & ALM must be at the strategy table and have knowledge of what is really happening - active stakeholder engagement is the key here.

Other basic ingredients include. 

• Good customer and product data linked efficiently to a well configured ALM system
• Relevant risk appetite and KPI measures
• A strong risk culture and governance framework
• And of course, technically proficient and commercially minded Treasury & ALM teams with communication skills.

Strong advocacy at the most senior levels is so important. A CEO who really understands ALM is more likely to lead an integrated strategy. Decision making must be good within a governance framework that recflects the importance of ALM. This means that ALCo should be a well-informed, influential and competent senior committee. ALCO members must represent the wider business but also be knowledgeable on ALM matters supported by regular training and easily digestible information.

Senior level advocacy, educating decision makers, and ALCo effectiveness are the hardest things to improve but will make the biggest difference to a good ALM process.

If the process needs improvement, when and how can you do this and then maintain it?

 It is often centred on a system change. It may be the installation, replacement or upgrade of the ALM system. The bank’s overall operating model may be changing, or it could be an important new hire; the CEO, CFO, Treasurer, CRO, or Head of ALM. Or it could be an external influence, such as from a regulator, or plain competitive pressure.

If a system change is the catalyst, make it the vehicle for total process improvement, and remember, it is the entire process that needs to be considered, not just a piece of specialist software. No part of the ALM process should be ‘off-limits’ and make it an important transformation project for the whole bank, not just a Treasury & ALM thing.

Embedding an ‘ALM Mindset’ in the bank is about making sure that ALM plays a key role in strategic planning and is considered in major commercial decisions and is central to key processes such as stress testing, ICAAP, ILAAP, and recovery & resolution planning. Present it clearly and demystify it by cutting out jargon.  Involve all relevant areas of the bank and share ownership.

What really makes a difference to whether a bank is good at ALM and Treasury?

Many banks have good quality Treasury & ALM teams, but to be good requires as much work on relationships and stakeholder management as it does on technical disciplines.