Set Clear Goals – Part of your credit union’s strategic planning process is long range goal setting. Set clear goals and objectives that are understood and seen to be achievable by your ALCO committee and your employees. Remember clear goals are reasonable goals that are measurable and have a time frame attached.
Understand the ALM Process – Your ALCO and Board should have a good general understanding of ALM basics at the least, and likely will know a lot more. Since ALM is an area that is constantly changing, a sound education program for those in governance and management positions is paramount. ALM goes well beyond sound ALM policies and reporting on time, it is an ongoing process.
Your Asset Liability Policy – When you write an ALM policy you determine the acceptable risk and return levels for your credit union. Duties of the Board and ALCO are also outlined, as well as your credit union’s procedures for ALM. Simple, clear policies work best to give your credit union the guidance it needs.
Measuring ALM Risk and Returns – A means of reporting is necessary for your Board and ALCO to view the past, present and future ALM positions of your credit union. Your reporting method should clearly demonstrate if your credit union is in compliance with its ALM policy limits and point out opportunities. Southeast offers several affordable ALM modeling tools that can assist in this process. One of the best ways to manage ALM risk is to run ALM modeling based on your credit union’s risk profile. Regular review in this manner will provide a picture of where you stand in relation to the current interest rate environment.
Executing the Process- Effective ALM management means ongoing and consistent execution of your ALM process. You cannot simply measure and let it go. Your ALCO is responsible for implementing an ongoing ALM process. Periodically they summarize ALM results and report them to the Board. An attitude of taking ALM seriously must permeate your organization.
ALM Bottom Line – Remember, it is not your money you are managing; it is your members’ money. Interest rate risk looms large but you can help mitigate those risks with a vigilant ALM process.