Module: | MODULE B: RISK MANAGEMENT
Q433: Scenario: Gamma Bank is reviewing its liquidity strategy. The Risk Management Committee evaluates the overall risk, but a sudden market tightening requires immediate decisions on deposit pricing and incremental asset mix. Based on liquidity governance frameworks, consider the following statements:
1. The Asset-Liability Management Committee is the primary executive body responsible for making tactical decisions on deposit pricing and maturity profiles.
2. The Risk Management Committee must step in and execute the daily funding operations if the Asset-Liability Management Committee fails to reach a consensus.
3. The Asset-Liability Management Support Group provides the vital Management Information System data required by the Asset-Liability Management Committee to make these tactical decisions.
Which of the statements given above is/are correct?
2. The Risk Management Committee must step in and execute the daily funding operations if the Asset-Liability Management Committee fails to reach a consensus.
3. The Asset-Liability Management Support Group provides the vital Management Information System data required by the Asset-Liability Management Committee to make these tactical decisions.
Which of the statements given above is/are correct?
✅ Correct Answer: B
The correct answer is B. Statement 1 is correct: The Asset-Liability Management Committee (ALCO) is the tactical, decision-making executive body.
It is directly responsible for operationalizing liquidity management, which includes deciding on product pricing (both deposits and advances), managing the maturity profile, and deciding the desired maturity of incremental assets and liabilities.
Statement 2 is incorrect: The Risk Management Committee (RMC) is a Board-level committee responsible for the independent evaluation and monitoring of overall risks.
It is strictly an oversight body.
Under no circumstances does the RMC step into the treasury dealing room to execute daily funding operations or tactical ALM functions; that line function belongs permanently to ALCO and the Treasury.
Statement 3 is correct: ALCO relies entirely on accurate data.
The ALM Support Group (often comprising operating staff from Risk and Treasury) analyzes balance sheet data, prepares complex structural liquidity mismatch reports, and feeds this Management Information System (MIS) data directly to ALCO.
It is directly responsible for operationalizing liquidity management, which includes deciding on product pricing (both deposits and advances), managing the maturity profile, and deciding the desired maturity of incremental assets and liabilities.
Statement 2 is incorrect: The Risk Management Committee (RMC) is a Board-level committee responsible for the independent evaluation and monitoring of overall risks.
It is strictly an oversight body.
Under no circumstances does the RMC step into the treasury dealing room to execute daily funding operations or tactical ALM functions; that line function belongs permanently to ALCO and the Treasury.
Statement 3 is correct: ALCO relies entirely on accurate data.
The ALM Support Group (often comprising operating staff from Risk and Treasury) analyzes balance sheet data, prepares complex structural liquidity mismatch reports, and feeds this Management Information System (MIS) data directly to ALCO.