ALM Goes to the Front of the Line

Regulators are coming down on CUs that don't do thorough ALM.

November 26, 2010
KEYWORDS economic , regulators
/ PRINT / ShareShare / Text Size +

In-house vs. outsourcing

Vendors disagree about whether credit unions should outsource ALM or bring it in-house.

“We’re seeing a trend among credit unions to hire us as an outsourced ALM provider while still using our in-house software solution,” says Haffner. “We, in turn, become a quasi-employee that delivers monthly or quarterly ALM reports. Interestingly, regulators a few years ago were the prime movers behind a push to bring ALM in-house. They wanted credit unions to thoroughly understand how to handle assets and liabilities, but they didn’t factor in the limitations, such as small asset bases or small staffs, that could keep credit unions from acquiring the deep knowledge the regulators were looking for.”

Haffner says outsourcing counters a lack of personnel or expertise, and prevents problems that arise when a knowledgeable employee leaves. “There’s flexibility, too,” he adds. “Clients may purchase different levels of consulting from us, and we can assist clients on what to expect from regulators.”

But Jon Heath, senior financial consultant for Fiserv’s Wisdom suite of financial management and accounting solutions, sees a drawback to outsourcing.

“In most cases with outsourcing you’re getting only quarterly reports, which means you’re looking at old news by the time you get your analysis back,” he says. “If you ask for more complex analysis, you have to pay extra. Keep in mind, too, that many outsourced analyses use generic data to forecast various scenarios.”

If credit unions decide to outsource, Haffner cautions them to be wary of brokers or investment advisors who offer to do ALM. “Do you want your risk manager to also trade and make investments on your behalf? Although they may offer ALM as a ‘free’ or ‘value-added’ service, you’re paying for it via commissions on their bond trades.”

Haffner suggests credit unions look at four things when seeking an ALM provider, whether in-house or outsourced: track record, client base, references, and what the vendor provides beyond software—expertise, consultation, and the ability to deal with regulators.

Every credit union is unique, so the key to accurate ALM modeling is taking into account how members behave during various market conditions, Heath says. “Be willing to get into details and look at historical trends and other information, including off-balance sheet data such as plant closings, etc.

“Also, be consistent and perform ALM on a regular basis. Be methodical and put thought into your assumptions and how your members will react to market changes. Run multiple scenarios to see how your balance sheet might perform and where you might have to address key issues. Make ALM training and ongoing education a priority not only for the staff who perform ALM, but for boards and ALM committee members.”

Parsons says earnings and capital trump everything—even less-than-stellar ALM. “If you’re challenged on income, or you’ve been warned in the past about insufficient ALM practices,” Parson says, “examiners will say, ‘No excuses.’ So you could see your ratings change for the worse.”

Heath agrees: “What are possible consequences of insufficient ALM? Failure. And that pertains to every credit union, from the smallest to the largest.”

Next: Focus on these seven risks

Post a comment to this story


What's Popular

Popular Stories

Recent Discussion

Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory ( will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

Your Say: Who should be Credit Union Magazine's 2014 CU Hero of the Year?

View Results Poll Archive