May 3, 2025 12:00:00 AM
Joining a credit union’s Asset-Liability Committee (ALCO) for the first time can feel like parachuting into a conversation already in progress. But your fresh perspective is valuable, especially if you’re willing to ask the questions that clarify assumptions and refocus the conversation on strategy, not just compliance.
Start here:
- What are our breaking points from an earnings perspective?
This isn’t just about base-case projections—it’s about understanding the downside. Look for the interest rate or liquidity scenarios that drive net income negative or materially compress margins. Ask to see stress cases, not just the policy-compliant ones. You’re not looking for red flags, you’re looking for inflection points. Are these scenarios plausible over the next few years given where we are in the economic cycle? Knowing your earnings breakpoints arms you to challenge strategy before it drifts too far.
- Are our interest rate risk metrics limiting our balance sheet strategy?
We’ve seen it too often: shocked net economic value (NEV) volatility becomes a speed limit on lending. While interest rate risk (IRR) metrics are essential, they’re not sacred. They’re tools designed to inform, not to constrain strategic growth. Financial institutions must be careful not to let investment strategies overconsume IRR capacity, like we saw between 2021 and 2023. If your bond portfolio is locking up duration budget or limiting your ability to fund long-term loans, its time to revisit strategy guardrails (or policy limits). ALCOs should ask: are we optimizing risk for member value?
- What’s the rationale behind the rates on our rate sheets?
Effective rate setting goes beyond matching peer institutions—it requires a strategic pricing model grounded in your credit union's unique cost structures and profitability goals. This may be the most overlooked lever on ALM. If your rate sheet is benchmarked to peers with different liquidity profiles or growth goals, you’re not pricing—you’re copying. Every ALCO member should understand the why behind pricing. At Accolade, we often help clients build rate-setting frameworks tied to their unique cost to lend. What are our marginal costs to lend across different loan types? What return are we targeting? How do we weigh short-term growth against long-term margin? Are our rates equitable to our membership?
Bottom Line:
New ALCO members aren’t expected to have all the answers on day one and it takes years to become confident in ALM discussions. However, by asking these critical questions, you can unlock strategic clarity, align decision-making processes, and ensure that your credit union’s balance sheet reflects its core mission.