6 Risk Management Strategies for Credit Unions

by Business 26 November 2021

Risk Management

For credit union boards of directors, risk management is a process that seeks to identify, assess, monitor, and control the credit union’s exposure to risks. The result of effective risk management should be greater protection of future earnings potential.

Credit unions and banks alike can use risk management as a tool to help protect the financial institutions they serve. Here are six risk management strategies.

Identify your credit union’s business model

Identify your credit union’s business model

The first step you should take when developing your risk mitigation strategies is to understand what your credit union does. A detailed description of business functions, products, and services offered will be critical for you to identify the key risks you face. For example, if your credit union is heavily involved in the underwriting of commercial real estate loans, then you will want to focus on developing risk mitigation strategies that are designed specifically for this asset class.

Understanding the business model helps you identify the financial, operational, and strategic risks that you could face. This will make it easier for you to determine how much emphasis you should place on each risk area and which strategies yield the best results.

Benchmark your credit union against risk exposures

Once you better understand what your credit union does, the next step is to benchmark your institution against the risks that are most prevalent in your industry. This will help you understand what the key risks are and how they differ from your competitors.

For example, if your institution is a smaller credit union, it may be more exposed to credit risk than institutions with more diversified asset portfolios. If this is the case, devote more resources to developing credit risk mitigation strategies designed to protect against this specific risk.

Develop an effective risk management framework

Once you have a clear picture of your credit union’s risks, it is time to develop an effective risk management framework. The goal is to identify the key objectives you should accomplish to implement effective risk mitigation strategies. Having a clear set of objectives will enable you to target which strategies are most likely to yield results and save valuable time.

For instance, credit union compliance training is critical to reducing the likelihood of regulatory violations. When your team members are properly trained in all aspects of compliance, the chances that they will engage in activities that lead to regulatory violations can be reduced.

Develop a recovery plan

While a recovery plan is not always necessary, it is useful for credit unions with limited resources. The idea behind the recovery plan is to identify how your credit union will recover if you were to suffer some sort of financial setback that might cripple your institution.

For example, having a concrete strategy in place can help ensure that there are no disruptions to your member service agreements, and that ensures that you continue to serve your members. Establishing a recovery plan will help you facilitate funds transfer if your credit union were to fail. The strategy does not have to be complicated, but creating one is an effective way to protect you and your members.

Establish accountability for risk management strategies

To ensure that your new risk mitigation strategies are working effectively, it is important to establish accountability. It is important that you have someone responsible for the strategy and who will track its effectiveness.

If your credit union has a qualified risk manager, they may be best suited for this role. However, it can also be beneficial to include board members in this process, since they will be more closely involved with the credit union’s overall operations.

Monitor and revise risk management strategies


Monitor and revise risk management strategies

You must monitor your risk mitigation strategy regularly to ensure that it continues to meet the objectives of your institution. Then, if it becomes necessary, you can make revisions as needed, since a comprehensive strategy will provide you with more flexibility in adapting to your industry’s changing climate.

Revise your strategy if the credit union has undergone some restructuring or if you have hired new staff that can help strengthen your risk management efforts. This will ensure you always protect your credit union from emerging risks.

Bottom line

Managing your credit union’s risk exposure can be challenging, especially if you lack some of the proper resources. However, it is important to develop effective strategies for mitigating your risks to protect both your member’s and your credit union’s financial stability.

As long as you abide by certain best practices, you can rest easy knowing that your credit union is protected. It can be difficult to identify all of your risks, but it is important that you do so in order to develop an effective risk management strategy.

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