Strengthening risk management in light of recent bank failures

What your credit union should learn about risk and liquidity from First Republic, Republic First and other bank seizures

A nearby house fire caused by the lack of fireproofing might prompt a family to install fire-resistant materials inside their house, update smoke detectors and sprinklers, and perform recurring maintenance to the furnace and any other equipment that could start a fire. The family is now at an advantage, having the opportunity to safeguard their home and family members from a possible tragedy.

Similarly, credit unions stand on a learning platform following the multiple bank failures that have made headlines in 2023 and now 2024, but they must start “fireproofing” the business now. For years, financial institutions mainly focused on the external side of the business to generate revenue and put services in place that make them unique to their client base. Too few banks or credit unions had an internal comprehensive risk management plan in place. A perfect example is California’s First Republic Bank, which started facing a crisis in the first quarter of 2023 and operated without a chief risk officer for more than half a year.

The financial services industry has dramatically changed over the last 15 years. Consumers and members are constantly looking for a more personalized experience. With new technologies like artificial intelligence rolling in faster than regulation, the policies and procedures that most banking institutions have in place are no longer relevant, nor will they be able to identify potential risks or implement protective measures. Credit unions can use this opportunity to review and update their governance framework and monitor it continuously.


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