The Olympic Rings of ALCO in 2026
- Zach Zoia
- 10 hours ago
- 7 min read
My family watched our fair share of the Winter Olympics over the past few weeks. Ice Hockey is a favorite, as my daughter plays, and watching the United States Women’s Team win Gold with her was a special moment. The speed of the skiers and snowboarders barreling down the mountain and the audacity of the jumps on the halfpipe always amazes us, too. And how could I forget the bobsledders and skeleton athletes flying down a tube on an ice track with tremendous precision and velocity!
The Winter Olympics are truly remarkable.
Notwithstanding the excitement of the games, my children had several questions about the meaning of the five rings they kept seeing on the screen. I explained to them that the five rings interlock purposefully and represent the union of the earth’s five inhabited continents (i.e., Africa, the Americas, Asia, Europe, and Oceania).
After a little more research, we found out the colors (blue, yellow, black, green, and red) were selected because at least one of them appears on the flag of every nation, symbolizing the unity of all countries.
While balance sheet management is not exactly an Olympic sport, we can draw some parallels with a recent podcast Vin Clevenger and I did with our colleague, Joe Kennerson, that highlighted his “5 ALCO Takes for 2026.”
Like the Olympic rings, Joe’s “5 Takes” are interconnected, and ALCOs that weave them together in their discussions will be in a much better position to thrive this year and beyond.
From the Editor
As a former college player and current youth coach, I was riveted to the Olympic hockey competition in Milan. On the women’s side of the competition, all signs pointed to a Gold Medal showdown between the US and Canada. And on the men’s side, it was the first time since 2014 (in Sochi, Russia) that the National Hockey League allowed their players to participate.
A one of its kind “best on best” competition that did not disappoint. Both tournaments culminated in legacy-cementing overtime victories for the United States. But to those who had the pleasure of watching these anxiety-inducing matchups, it’s safe to say that either country could have won those games.
A bounce here or there and Canada wins gold in both.
In a way, it reminds me how close the margins are in banking.
In this month’s Bulletin, DCG Managing Director Zach Zoia writes about the parallels between the overlapping Olympic rings and the related interconnectivity of balance sheet management.
He specifically focuses on five themes (one for each Olympic Ring) and the importance of understanding how the overlap amongst these issues should impact your business.
He specifically notes, “Viewed independently, each is important. Managed together, they help form a cohesive strategy to position your institution for a prosperous 2026.”
In the wildly competitive industry that is banking, we hope that Zach’s article provides the advantage so that your team reaches the medal podium in 2026!
Vinny Clevenger, Managing Director
As you transition from the thrill of the Winter Olympics into the end of the first quarter of the calendar year, here are five key considerations for 2026 that should make it to your ALCO podium.
1) Margins have been impressive, but be prepared for a potential turnaround
Net interest income and margin levels were a bright spot for the industry in 2025, and most DCG models indicate that that trend should continue in 2026. Yet it is important to understand that the variables influencing those income tailwinds may be changing.
For many, funding cost relief has been leading the way since the Fed began easing in September 2024. With the Fed potentially on “hold” (for now) and thus funding cost relief potentially becoming harder to achieve, the asset side has become a stronger influence in many models as legacy cash flow continues to recast into today’s relatively higher interest rate environment.
However, the asset yield tailwinds will not last forever, especially if we continue to experience pressure on new loan and investment yields like we’ve seen over the past year.
ALCOs should be exploring:
The amount of NII lift the asset side is expected to generate in the current environment without incremental growth
To what extent would loan and investment yields need to fall before those tailwinds become headwinds
The level of growth that may be required to resume upward trending NII levels if yields decline
The degree to which funding costs may need to be cut to offset incremental asset yield pressure
2) A new era of liquidity management is upon us
The failure of Silicon Valley Bank in Q1 2023 accelerated the adoption of liquidity best practices that we here at DCG have been preaching for years!
On top of that, higher market rates and additional competition for bank and credit union core deposits over the years via Fintechs, NDFIs, Stablecoins, etc., are making the environment more challenging and elevating the need for a renewed emphasis on strong enterprise liquidity management and the ability to “tell your story.”
Proactive ALCOs should be focusing on the following to stay ahead:
Revisiting policies and overall liquidity philosophy to ensure they align with the 2026 world and beyond and allow for balance sheet flexibility
Devoting time to collateral management and understanding the timing of how quickly you can access secured and unsecured resources
Understanding the marginal cost of liquidity (i.e., customer/member funds vs. wholesale alternatives)
3) The challenge of balancing deposit cost savings and growth continues
With the Fed cutting rates by 175bps over the past 18 months, deposit cost savings have been meaningful for most financial institutions. Time deposits have led the way and still have some relief forthcoming for many. Higher yield non-maturity accounts have also contributed, with rates declining from the mid 4% range to the mid 3% range (90th percentile pricing per DCG’s Deposits360°®.)
However, deposit growth has been a bit of a different story. DCG’s Deposits360° model shows approximately 4% deposit growth in the industry since the Fed began easing, which is certainly better than the 2022–2024 timeframe, but still a number most institutions want to see increase to help with liquidity profiles and overall franchise value.
The most interesting aspect of the growth discussion is that balances have flowed into higher cost discretionary type accounts (e.g., MMDA up 8%), which has muted the impact of banks and credit unions trimming their own deposit rates as the Fed cut.
To put it in a more specific context, with the Fed down 175bps, DCG’s Deposits360° shows a beta of 7% for non-maturity deposit costs over the time frame.
A decline of 13bps!
Changes in mix, some of which is new dollar growth, are driving this underwhelming 7% figure. Moreover, we’ve seen institutions whose aggregate NMD costs are actually higher today than back in September 2024 due to this exact phenomenon.
So, what should strong ALCOs consider as they attempt to prioritize whether it is best to drive additional cost savings or additional growth?
Understand the drivers of your margin outlook and inflection points
Assess your current and prospective liquidity need and philosophy
Once you have a good understanding of these two components, there can be a healthier conversation about which is more important for your institution.
4) Shift your focus away from competitor pricing
Frequently, a main obstacle that flares up in ALCO meetings related to deposit and loan strategy goes something like: “We can’t do that because our competition is doing this.”
While institutions cannot totally ignore their competition, the healthiest ALCO discussions DCG sees start with an inward focus and then pull in outside influences later in the process.
Competition will always be there to contend with, but institutions often do not have the same balance sheets, or business models, or risk appetite as those with whom they compete. Nor do they have the same ideas on future strategies that are impacting today’s decisions on loans and deposits.
ALCO discussions should focus first on: current position, goals, priorities, policies.
5) Understand the powerful value of options
Bankers deal with options every day related to loan and deposit pricing and structure decisions. Yet, all too often, we see valuable options “given” away to customers/members.
In the current environment, prepayment penalties and floors are two of the more noticeable options that come up in lending discussions, but are not always priced “appropriately.”
DCG encourages ALCOs to dive deeper into the true cost of foregoing prepayment penalties and/or floors on loans (note: you can get pricing on these in the capital markets), and at the very least understand how these options are priced so you can include this in dialogue with your clients.
It can be a powerful conversation to show prospective borrowers a variety of loan deals with and without prepayment penalties, floors, etc., to educate them on how much value you can provide to them by giving them “options” (pun intended).
Further, while these “on the balance sheet” options are incredibly valuable when approached the right way, being ready to utilize “off the balance sheet” options like interest rate caps and floors at macro balance sheet level are also valuable tools for an ALCO to have.
Increasingly, more banks and credit unions are becoming comfortable using option derivatives to hedge risks that they may not be able to do as well within their organic customer/member base, and at times the insurance that these options provide can be quite cost effective and efficient in mitigating balance sheet “tail” risks.
Success in 2026 will not come from focusing on one ring in isolation
Like the Olympic rings, these five ALCO considerations are distinct but inseparable. Each ring has its own color and identity, yet their strength and symbolism come from being interlocked.
The same is true for margin, liquidity management, deposit strategy, blocking out competitor noise, and harnessing the value of options.
Viewed independently, each is important. Managed together, they help form a cohesive strategy to position your institution for a prosperous 2026.
ALCOs that successfully navigate 2026 will not focus on one ring in isolation. They will understand how all five are interconnected and work in unison.
For more insights from Darling Consulting Group, click here.
Zach Zoia is a Managing Director at Darling Consulting Group. He helps management teams throughout the country develop strategies to improve financial performance and more efficiently and effectively manage liquidity, capital, and interest rate risks.
Zach began his career with DCG in 2008 as a financial analyst. He earned a BS in finance from Boston College and an MBA from Babson College.
© 2026 Darling Consulting Group, Inc.
