Pub. 3 2012 Issue 3

www.wvbankers.org 20 As a result of increased examiner focus on interest rate risk, many financial institutions are reviewing and enhancing their asset/liability functions, models, and risk management processes. U nfortunately, the thrust of these efforts all too often stops with policy and regulatory compliance. If your mea- sures of interest rate risk are within your policy guidelines, then all is assumed to be well and you adjourn the meeting. An associate of mine said an A/L committee that acts like this should be renamed the “profit prevention committee.” Your A/L committee needs to be a profit-oriented and action-biased func- tion. It needs to look well beyond the gap report and focus on performance in the context of risk tolerance. Few insti- tutions have failed or will fail because of mismanagement of interest rate risk – but many will seriously underper- form their peers and fail to realize their potential. Many times these will be the very institutions whose shareholders are forced to seek return on investment by selling out at the incredible earnings and book multiples we’ve been seeing recently. Other than for a small number of very closely owned banks, commu- nity banks should operate under the premise that they earn the privilege of remaining an independent bank. A/L committees might assess their effec- tiveness by addressing these questions: Getting the Most Out of Your Asset/Liability Committee By Ed Krei, Managing Director, The Baker Group LP • How can we be most efficient in our decision-making? • Have we clearly identified our primary areas of responsibility? • Are we measuring and reporting our risk positions using the most appropriate and practical techniques, given our capital position, balance sheet structure, and asset mix? Don’t just ask, “Do we comply with our policies?” but rather “Do we like how we are positioned today?” • How can we become action-oriented and become a resource or venue for creating and evaluating the risks and rewards of strategies to improve performance? Productivity of A/L Committee Meetings. I would challenge A/L committee members (along with board members) to ask themselves the fol- lowing questions: Are we spending sufficient time on the issues that make the biggest difference to our long-term performance? How can we make our meetings more productive in focusing on issues of real significance? If our reporting package looks substantially identical to three years ago, why hasn’t our bank, our competition, our balance sheet, and our risk profile changed over the last three years? A/L reports should be succinct and simple to use – the committee members shouldn’t have to labor through hundreds of pages of minutia to find the salient issues. The key points should be summa- rized with alternative proposed actions recapped to facilitate consideration. Responsibilities of my A/L commit- tee. Turn your A/L committee into your financial mission control. Get your senior officers on the committee and involved. Expand your committee membership to include not only your top financial and accounting officers, but also your chief lender, chief credit officer, head of retail banking, market- ing manager, and head of operations. Make sure the committee spends time Q Asset/Liability — continued on page 22