Who Owns Balance Sheet Management in Banks?

The silent dilemma that can impact margins, solvency, and strategic decision-making.

In today’s financial environment, marked by increasing pressure on profitability and risk, Balance Sheet Management is no longer just a technical function. It’s a strategic responsibility steered by the ALCO (Assets and Liabilities Committee).

Yet, one essential question remains unresolved in many banks: Who should run the day-to-day operations under ALCO guidelines: Risk? Treasury? Management Control? The CFO?

If your bank still has grey zones around this topic, keep reading.

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Balance Sheet Management: A Critical Function with Blurred Lines

At the heart of every financial institution, Balance Sheet Management plays a crucial role in ensuring both stability and profitability, becoming a strategic and transversal function that requires coordination between several management areas, such as the CFO, Treasury, and Risk. Yet, there is a clearly established governance body for Balance Sheet Management: The Assets and Liabilities Committee (ALCO).

The Assets and Liabilities Committee, better known by its acronym ALCO, acts as the strategic decision-making authority, responsible for defining the balance sheet management framework, setting risk and profitability targets, and ensuring regulatory compliance. While ALCO leads the strategy, the day-to-day execution is typically carried out by Treasury, and the Risk function provides oversight, validation, and second-line control.

Nevertheless, despite the existence of this governance structure, defining and maintaining clear roles and responsibilities among the CFO office, Treasury, and Risk often gives rise to internal friction, political debates, and, in more complex cases, even operational gridlock.

This article aims to clarify:

• What exactly Balance Sheet Management is,
• On which variables its functional and operational attribution depends,
• and how responsibilities can be distributed among key areas. 

What Is Balance Sheet Management?

Balance Sheet Management refers to the process by which a financial institution monitors, optimizes, and controls the structure of its balance sheet - assets, liabilities, and capital - with the goal of:

• Ensuring sustainable profitability,
• Meeting regulatory requirements,
• And protecting against structural risks (such as interest rate, liquidity, and FX risk).

2 Pillars of Balance Sheet Management

1. Structural risk coverage: Identifying, measuring, and managing long-term risks affecting the bank’s balance sheet.
2. Profit generation: Making active decisions on areas like the ALCO Portfolio or the Funds Transfer Pricing (FTP) system shapes product profitability and commercial unit performance.

How to Assign Ownership of Balance Sheet Management in a Bank

Although the ultimate ownership and strategic responsibility for balance sheet management in a bank lies with the ALCO, the distribution of balance sheet management responsibilities does not follow a single rule. There’s no one-size-fits-all model for assigning operational ownership.

While regulations define some mandatory roles (especially for Risk and Control functions), internal structures vary widely, even across banks in the same country or sector. Much of this variation depends on each institution’s management culture, often shaped by the ALCO itself.

This diversity reflects objective factors (e.g., the type of bank or balance sheet complexity) and more subjective or cultural elements.

Understanding these variables is critical for designing an operational model that avoids conflicts of interest, overlapping functions, and decision-making voids.

1. Type of Financial Institution

• Commercial Banks: Often have significant structural exposure to interest rate and liquidity risk, requiring a more technical and supervised approach.
• Investment Banks: With leaner structures and more reactive balance sheets, they prioritize tactical agility and often assign this function to their Treasury or Markets departments.

2. Organizational Culture

The priorities set by the Assets and Liabilities Committee (ALCO) and the bank’s culture, shaped by leadership style, risk maturity, and institutional history, greatly influence how they make Balance Sheet decisions.

• Conservative Institutions: Focus on capital preservation, minimizing structural risks, and regulatory compliance. In these cases, Balance Sheet Management often aligns with the Risk function, adopting a more reactive approach to external conditions.
• Aggressive Institutions: These aim to actively boost financial margin, optimize risk-adjusted returns, and use sophisticated tools (e.g., structured derivatives, repos). Here, Treasury or Markets often lead strategic balance sheet decisions with a performance-oriented mindset.

The key is not to favor one model over another but to ensure strong governance and a balance between safety and profitability.

3. Dominant Focus: Risk vs. Return

• If the main priority is structural risk oversight, the risk usually takes the lead, applying prudential principles.
• If the focus is on maximizing balance sheet profitability, the Treasury or Markets typically take charge, supported by Management Control for internal pricing and performance evaluation.

How to Approach the Division of Tasks and Responsibilities for BSM

A common mistake in Balance Sheet Management is the overlap of functions across different units. When multiple areas, such as Treasury, Risk, and Management Control, try to influence the same decisions without clear boundaries, the result is duplication, contradiction, and ultimately, suboptimal outcomes.

This lack of clarity can lead to political conflict, loss of accountability, fragmented decision-making, and execution errors with real financial impact. It also undermines decision traceability and weakens the bank’s consolidated balance sheet vision.

To avoid conflicts and enhance efficiency, banks should:

1. Define Roles Based on Technical Capabilities

Each unit provides a critical but limited perspective: 

• Risks: proficiency in the identification, measurement, and control of structural liquidity risk, interest rate risk, credit risk, and other balance sheet risks. Responsible for defining limits and risk appetite, as well as supervising compliance with policies and the solvency of the entity.
• Treasury: Oversees both strategic and tactical dimensions of balance sheet management. This includes strategic asset and liability management, long-term liquidity risk management aligned with regulatory requirements, day-to-day funding and cash operations, as well as the execution of hedging strategies for interest rate and foreign exchange risks, all under ALCO’s guidance.
• Management Control: accounting analysis, calculation and allocation of internal transfer prices (FTP), evaluation of commercial and financial performance, reporting and support in strategic planning. A clear role definition reduces silos and improves ALCO’s ability to make informed decisions. Implement a Functional Operating Model. 

• • ALCO defines strategy and oversees,
  • CFO/Treasury executes,
  • Risks area supervises and controlled,
  • Management Control evaluates and simulates

This design creates a transversal structure of collaboration between Treasury, Risk, and Management Control areas, where each actor knows what role they play, what data they provide, and what decisions they are responsible for, always under the umbrella of the CFO and the Treasurer, who report directly to the ALCO.

In other words, the CFO and the Treasury area execute the daily operations under the ALCO's guidelines, and the Risk area supervises and validates. In the case of smaller banks, the CFO may directly manage the balance sheet. In contracts, in larger banks, a more specialized structure exists with dedicated ALM (Asset and Liability Management) teams operating within Treasury to manage structural risks and ensure strategic alignment. 

Who Should Ultimately Lead Balance Sheet Management?

Although several players are involved, it must always be clear that the ownership and primary responsibility for balance sheet management in a bank lies with the ALCO, supported by the CFO and the Treasury area, under the supervision of the risk area and senior management. This structure ensures a strategic vision, risk management, and regulatory compliance, all critical elements for the financial health of any bank. 

This functional structure will act as the nerve center between analysis, execution, and supervision. Their responsibilities include:

• Making investment and hedging decisions for the ALCO Portfolio,
• Ensuring alignment between risk strategy and financial policy,
• Coordinating data integration across Risk, Markets, and Management Control.

This model avoids conflicts of interest and delivers a cross-functional, unbiased perspective to inform ALCO decision-making.

The Case of Commercial Banks: Who Manages the Balance Sheet?

In commercial banks, balance sheet structures are usually more complex and require:

• A stronger role for the Risk area, due to structural risk exposure,
• A tactical role for Treasury, particularly in funding and hedging,
• Active involvement in Management Control in FTP construction and performance tracking,

Who Manages the Balance Sheet at Investment Banks?

In investment-focused institutions, balance sheet management is less fragmented, but always under the supervision and strategic framework of ALCO:

• Treasury or Markets typically owns the process end-to-end, as decisions revolve around capital optimization, funding, and efficient use of complex financial instruments.
• Structural risk oversight is narrower and usually plays a supporting, not leading, role.

In this case, the model is rarely questioned, as it reflects the logic of centralized, fast-paced execution with a short- to mid-term focus.

Conclusion: Toward a Strategic, Cross-Functional, and Unbiased Model

Balance Sheet Management should no longer be an organizational battleground.

Its influence on profitability, compliance, and financial resilience requires a clear, balanced, and collaborative model.

The most effective and increasingly adopted approach among leading banks is to:

Follow a transversal structure of the different areas involved, 

Executed on a day-to-day basis by the CFO and the Treasury area, 

Supervised by the risk area, 

Supported by Management Control and Markets, 

And aligned with ALCO’s strategic direction. This setup minimizes internal conflict and provides the ALCO with an integrated, unbiased view that enhances the quality of decision-making. 

Because effective balance sheet management doesn’t depend on who speaks loudest, it depends on who has the best decision-making architecture.

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