In the current economic and regulatory environment, your financial institution’s Asset-Liability Committee (ALCO) has a lot to think about regarding compliance, ranging from liquidity risk, interest rate risk, investments, funding sources and related issues. However, if your ALCO is concerned only about compliance, your financial institution may be missing out on a huge opportunity.
As interest rates rise, financial institutions are revisiting whether an in-house asset liability management (ALM) model or a third-party (outsourced) ALM model is the best option for monitoring and assessing interest rate risk (IRR). Many variables and factors need to be considered when making such a critical decision. The following four factors will help institutions identify when it is best to implement an in-house model and when to outsource to a third-party vendor to ensure compliance with regulatory mandates associated with measuring and monitoring interest rate risk: