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This study examines the balance sheet management governance operating model of selected failed banks from 2007, 2008, 2009 and 2023, with emphasis on the corporate governance structure in place and the position of the asset-liability committee (ALCO), and draws conclusions and recommendations for future policy. All failed sample banks exhibited near-identical governance frameworks for management and oversight of balance sheet risk: namely an ALCO that reported to the senior executive management committee, and was at least two levels, if not three levels, below board level. It is inferred that, as the ultimate responsible and accountable forum for ensuring balance sheet viability and continuing going concern of the bank, the board would benefit from being closer to the balance sheet risk management process. This implies changing the governance structure such that the ALCO is closer to the board itself, and able to provide direct comfort to the board that the bank's capital and liquidity risks are being managed appropriately. The following bank governance measures are recommended, to be imposed by regulatory fiat if necessary: • Direct delegated authority of the ALCO to manage the balance sheet, from a long-term robustness and viability perspective, directly on behalf of the board. • The ALCO to report directly to the board, rather than via the executive management committee (or as an alternative approach, changed to become a sub-committee of the board). This recognises that the asset-liability management (ALM) discipline is at least as important as, if not more important than, the 'audit' oversight function undertaken by the board audit committee. • Technical expertise at ALCO and board level that is capable of discerning the genuine capital and liquidity risk exposure position of the bank, on a medium-term forward-looking basis, at all times. [ABSTRACT FROM AUTHOR]

Risk management in banking is universally the ultimate responsibility of the board of directors. That said, boards generally delegate various aspects of this responsibility to various executive management committees. Stewardship of the bank's balance sheet is given typically to the Asset-Liability Committee (ALCO). The mere existence and operation of an ALCO is not sufficient to prevent banks failing however, as the events of 2008 showed. Twelve years after that period, the markets are experiencing another global stress event, this time the impact of the coronavirus pandemic. This brings under focus again the role and effectiveness of the ALCO, as banks strive to assist their customer franchise while simultaneously ensuring the maintenance of balance sheet viability. The author assesses the factors that an ALCO must address if it is to remain fit-for-purpose during an economic crisis, and what specific operating methods and culture it should operate under. The paper concludes that an open culture at ALCO, which fully debates all issues is a key ingredient in this regard. Other aspects of importance include an appropriate governance structure, membership and reporting suite of risk indicators. [ABSTRACT FROM AUTHOR]

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Asset-liability management (ALM) helps managers achieve their respective objectives by surveilling and controlling the ways through which resources are obtained and allocated. Furthermore, with the help of liquidity management, which sets the required cash by banks for fulfilling costs and other needs (e.g. the cash requested by depositors), ALM controls the risk. In addition, ALM helps managers realize profitability and efficiency of the bank through the application of goal programming (GP) whereby multiple objectives are simultaneously considered when making decisions. In the present research, upon collecting the required data and information, acquiring opinions of experts at a sample bank, and investigating balance sheet of the bank while considering respective constraints, orders of priority of objectives were determined. The results indicated consistency of some items in the balance sheet, such as cash inventory and liability to Central Bank with those set by the model. On the other hand, when it came to some other items, including receivables from the government and credited facilities to public sector, the observed growth was in line with that anticipated by the model. In the meantime, for most items of the balance sheet, including termed deposits and other deposits, investments, and joint activities, the model suggested variable yet positive growths; the growth was higher in demand deposits which are known as less expensive resources, indicating facts about Iranian banking system and Iranian economy where communities are making greater deals of effort to attract this sort of resource.