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.

Yet, one essential question remains unresolved in many banks: Who should truly lead this function? 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.

However, defining clear roles and responsibilities often creates internal friction, political debates, and, in the worst cases, operational paralysis.

This article aims to clarify:

• What exactly Balance Sheet Management is,
• What variables influence who should lead it,
• 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 protect 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

There’s no one-size-fits-all rule for assigning 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, as it will depend on the management culture determined by the Assets and Liabilities Committee (ALCO).

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 takes 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:

• • Risk: Expertise in liquidity and interest rate sensitivity measurement.
  • Markets: Tactical execution and insights on real-time market conditions.
  • Management Control: Accounting analysis, FTP design, and commercial performance evaluation.

Clear role definition reduces silos and improves ALCO’s ability to make informed decisions. 

• • Risk to supervise and set limits,
  • Markets to execute tactically,
  • Management Control to assess and simulate scenarios,
  • And a specialized Balance Sheet Management Unit - reporting to the CFO - to centralize strategic decisions.

This setup fosters structured collaboration, where each team is aware of its role, provides specific data, and has clear decision-making boundaries.

Who Should Ultimately Lead Balance Sheet Management?

While multiple stakeholders are involved, ultimate ownership should lie with an independent, specialized unit that reports to the CFO, who is ultimately accountable to the entire ALCO membership.

This unit, let’s call them the Balance Sheet Managers, should serve 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 Risk, due to structural risk exposure,
• A tactical role for Markets, particularly in funding and hedging,
• Active involvement in Management Control in FTP construction and performance tracking,
• And a centralized Balance Sheet Management Unit will coordinate all these elements and report to the CFO.

Who Manages the Balance Sheet at Investment Banks?

In investment-focused institutions, balance sheet management is less fragmented:

•    Treasury or Markets typically own 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:

Create a specialized unit under the CFO,

Supervised by Risk,

Supported by Management Control and Markets,

And aligned with ALCO’s strategic direction, to whom, let's remember, the CFO will report to.

This setup minimizes internal conflict and provides the committee 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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