Module: | MODULE B: RISK MANAGEMENT
Q342: Scenario: ABC Bank is experiencing sudden liquidity stress due to a rapid outflow of bulk corporate deposits. The bank urgently needs to restructure its balance sheet by adjusting deposit interest rates and liquidating certain investments to generate immediate cash flow.
Based on the bank's internal governance structure, which entity has the primary operational authority to make these strategic pricing and liquidity decisions?
✅ Correct Answer: C
The correct answer is C. The Asset Liability Management Committee (ALCO) is the primary executive committee responsible for the active management of the bank's balance sheet, including managing liquidity risk, interest rate risk, and deciding on the pricing of deposits and advances.
In a liquidity stress scenario, ALCO has the operational authority to adjust deposit rates or alter the asset mix to restore stability.
Option A is incorrect because the Board does not micromanage tactical interest rate changes; it sets the broad Risk Appetite.
Option B is incorrect as the Chief Dealer operates within the limits set by ALCO but does not dictate the bank's overall deposit pricing strategy.
Option D is incorrect because while the RMC oversees the risk framework, ALCO is the specialized body that handles day-to-day ALM execution and liquidity crises.
In a liquidity stress scenario, ALCO has the operational authority to adjust deposit rates or alter the asset mix to restore stability.
Option A is incorrect because the Board does not micromanage tactical interest rate changes; it sets the broad Risk Appetite.
Option B is incorrect as the Chief Dealer operates within the limits set by ALCO but does not dictate the bank's overall deposit pricing strategy.
Option D is incorrect because while the RMC oversees the risk framework, ALCO is the specialized body that handles day-to-day ALM execution and liquidity crises.