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.
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:
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:
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.
The key is not to favor one model over another but to ensure strong governance and a balance between safety and profitability.
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:
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.
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:
This model avoids conflicts of interest and delivers a cross-functional, unbiased perspective to inform ALCO decision-making.
In commercial banks, balance sheet structures are usually more complex and require:
In investment-focused institutions, balance sheet management is less fragmented, but always under the supervision and strategic framework of ALCO:
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.
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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