Improving Your Understanding of Risk Protects Your Credit Union

By David Reed

To your credit union, risk most likely means finding new ways to serve your members. As a member-focused organization, your credit union is used to recognizing and handling risk in a way that protects your organization while also providing your members with the products and services they need.

But from an examiner’s point of view, risk is the number one enemy, and something to avoid as much as possible. Examiners are primarily concerned with making sure your credit union is safe and sound. Safe and sound means your organization does not pose a risk of failure, which can in turn pose a risk to the NCUA’s Share Insurance Fund.

I train both state and federal examiners, and when I talk to them about their biggest concerns, many tell me they don’t feel comfortable volunteers know enough about the risk profiles and appetites of their credit unions. After the troubles the financial industry has seen in the past five years, examiners are scrutinizing every possible risk—and they expect the credit union’s board to be doing the same.

These concerns are reflected in the OIG Capping Report on Material Loss Reviews released by the NCUA Office of the Inspector General (OIG) in November 2010, which summarized the findings of Material Loss Reviews performed for failed credit unions from August to November 2008. The report determined one of the key contributors to credit union failures was the failure of the board to properly manage risks.

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