Asset-Liability Committee (ALCO) in 2025: How It Safeguards Australian Banks

Ever wondered who steers the financial ship inside Australia’s biggest banks? Behind the scenes, an Asset-Liability Committee (ALCO) is constantly assessing risks, balancing profits, and safeguarding your deposits. In 2025, their decisions matter more than ever as economic tides shift and regulatory frameworks tighten.

What is an ALCO—and What Do They Actually Do?

The Asset-Liability Committee (ALCO) is a high-powered group within banks and credit unions. Their job is to manage the balance between what the bank owns (assets, like loans and investments) and what it owes (liabilities, such as customer deposits and borrowings). Think of ALCO as the strategic nerve centre, blending finance, risk management, and regulatory savvy to keep the institution stable and competitive.

• Who sits on ALCO? Senior executives from treasury, lending, risk, and finance.

• What do they oversee? Interest rate risk, liquidity risk, capital adequacy, funding strategies, and compliance with APRA and global standards.

• How often do they meet? Most meet monthly or even weekly—frequency has increased since the COVID era and with new 2025 volatility.

ALCO’s decisions influence loan pricing, deposit rates, and even how easy it is for businesses and households to access credit.

2025: New Challenges and Regulatory Shifts for ALCOs

This year, Australian ALCOs are facing a dynamic environment:

• Interest Rate Uncertainty: With the RBA’s gradual easing after 2023–24’s inflation fight, ALCOs must reposition portfolios for a lower-rate world—without sacrificing profitability.

• APRA’s Enhanced Liquidity Rules: In March 2025, APRA rolled out updated liquidity coverage ratio (LCR) requirements, demanding banks hold more high-quality liquid assets. ALCOs are now recalibrating funding strategies to comply while maintaining lending capacity.

• Climate Risk Disclosure: From July 2025, large banks must integrate climate risk into their balance sheet management. ALCOs are actively stress-testing exposures to sectors vulnerable to extreme weather or carbon policy changes.

These shifts mean ALCOs have to be agile, using real-time data and scenario analysis to make informed decisions. For example, a sharp drop in fixed-rate mortgage demand in early 2025 led several banks’ ALCOs to pivot toward variable-rate loan offerings, protecting margins in a falling rate cycle.

How ALCO Decisions Ripple Down to You

While ALCOs operate behind closed doors, their choices impact everyday Australians in surprising ways:

• Loan and Deposit Rates: ALCO sets the policies that drive the rates on your home loan or term deposit. When funding costs rise, mortgage rates often follow.

• Access to Credit: If an ALCO tightens lending standards due to economic uncertainty, getting a business loan or new credit card might become harder.

• Bank Stability: By actively managing risks, ALCOs help prevent liquidity crunches or capital shortfalls that could threaten deposits.

For example, in April 2025, a regional bank’s ALCO responded to APRA’s liquidity update by temporarily increasing deposit rates to attract more stable funding—directly benefiting savers.

Inside an ALCO Meeting: Balancing Act in Action

Picture this: the ALCO table is scattered with charts tracking loan growth, funding costs, and stress scenarios for everything from property downturns to cyber-attacks. Members debate questions like:

• Should we lock in more long-term wholesale funding, even if it’s more expensive?

• How exposed are we to sectors at risk from climate policy changes?

• What’s the impact if the RBA cuts rates again next quarter?

Decisions made here directly shape the products and rates customers see, and the resilience of the broader financial system.

The Takeaway: ALCOs Are Quietly Shaping Your Financial Future

In 2025, with economic winds shifting and regulatory pressures mounting, ALCOs are more important than ever. Their expertise keeps banks resilient, ensures compliance, and ultimately impacts how Australians borrow, save, and invest. The next time you notice a rate change or new lending rule, there’s a good chance ALCO was at the helm.