Monitoring financial risk during widespread disruption
Gauges the board and management should watch.
Governing changes during crisis. Boards need to stay out of operational decision-making, yet they need to be aware of what is happening in the credit union. Awareness—even of bad news—is extremely important.
As the effects of COVID-19 ripple across the economy, the board and management need good, up-to-date information on key financial issues that may change rapidly. You don’t want any surprises during turmoil, such as what’s happening in the wake of the coronavirus. Surprises can destroy trust between the board and CEO.
A key to awareness is to develop and monitor systems of early indicators of financial changes taking place. In addition, with so much uncertainty, it is important for management to create a variety of projections based on different scenarios: best case, likely case and worst-case scenarios.
Manage the Balance Sheet: Capital and Deposits
A key to survival, now and always, is preserving capital (net worth). In recessions, the capital-to-assets ratio tends to drop rapidly. Why? Financial losses cause the dollar balance of capital to decline. But at the same time, growth in deposits can be a big contributor.
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