This Guide Will Help You Identify The Means That Can Help Your Credit Union Stay Afloat

For credit union boards of directors, risk management techniques are a vital process. This process seeks to identify, assess, monitor, and control the credit union’s exposure to risks. 

The result of effective risk management should be more excellent protection of future earnings potential. Credit unions and banks can use risk management to help protect their financial institutions. 

This article will discuss some of the risk management strategies you must employ to keep your credit union safe. But first, let us understand the basics. 

Let’s begin!

What Is A Credit Union?

Before discussing different risk management strategies, you must clearly understand the basics. This introductory section will provide the necessary overview of credit unions before getting to the actual discussion. In this section, we will be discussing the fundamentals of credit unions.

Credit unions are financial cooperatives created by a closed group to offer standard banking services. Credit unions can range in size and shape. Some of them can span across states. 

These banks work and serve their members. Therefore, you must be a member first to take advantage of their services. The requirement to become a member can vary from one firm to another. Thus, inquire first. 

Credit unions offer standard banking services and share many similarities with traditional banking services. 

Risk Management Strategies For Your Credit Union Business

Now that the basics are out, we can finally get the meat of things. 

In this section, we will discuss or point out some risk management techniques you can employ to keep your credit union out of the risk. 

Therefore, let us start understanding some of the most prominent risk management strategies that fit a credit union. 

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. It will help you to identify the key risks you face. 

For example, imagine your credit union is heavily involved in the underwriting of commercial real estate loans. Therefore, 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 a Practical Risk Management Framework

Once you have a clear picture of your credit union’s risks, it is time to develop a practical 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 adequately 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 helpful 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 essential to establish accountability. It is vital 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

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 essential 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 challenging to identify all of your risks, but it is essential that you do so in order to develop an effective risk management strategy.

Additional Reading:

• Understanding The Impact Of Bad Credit On Loan Approval
• Key Elements Of The Risk Management Programme| Must Read
• Governance, Risk Management And Compliance (GRC): Things To Know