Would You Want to Live in a Risk-Free Society?
in Compliance & Regulatory
By: David Frankil, NJCUL President/CEO

Think about it – there is literally no human activity that occurs without some degree of risk.  Walking on the street, riding a bike, driving a car, flying in an airplane, even getting a meal in a restaurant all pose some degree of risk. 

The question we face as individuals is the same we face as leaders of financial institutions – how much risk are we willing to accept, and how do we manage it.  But to re-state the obvious, without risk, there is no return....

Compliance ConferenceThe key difference between individual and organizational risk assessments is not just increased complexity, but the number of people involved. While some of us no doubt involve significant others and quantitative measures in some of our personal decisions, for most of the everyday issues we just make our own choices and move on.

And then, of course, there is NCUA to consider as well.

That means we need to create a framework and adopt methodologies across the enterprise, to agree on how we think about risk, make decisions about risk, understand how risks can amplify each other, and (ultimately) better understand and accept the risks we’re taking.

Having eaten at some dodgy restaurants, it is encouraging to see that the methodologies available to us at credit unions are far more rigorous than those most of us use in our personal life. 

One of the speakers at our upcoming May 19 NJCUL Compliance Conference is addressing  the topic of Enterprise Risk Management for credit unions - John Collins, SVP Risk Management and Administration for Alloya Corporate FCU.

John is going to highlight how credit unions manage risk from several different perspectives and measures – 

  • Dollars exposed
  • Capital-at-risk
  • Risk-adjusted returns

Each of these need to be assessed for total potential risk, which is the likelihood of potential occurrence (probability) x impact (in dollars). That seems fairly straightforward, but as John will explain, the devil is in the details of your process, methodology, assumptions and transactions. What makes it complicated is that different parts of a credit union may assess risk differently, based on their respective priorities. 

So the policies and governance framework at your credit union are critically important to establishing a consistent approach to managing –

  • Interest rate risk
  • Credit risk
  • Liquidity risk
  • Transaction risk

Measuring your overall risk appetite and profile has many moving parts – but risks can be mitigated, accepted or avoided with the right processes in place. Come join us at the NJCUL Compliance Conference on May 19 to learn how other credit unions manage their risks, NCUA requirements, best practices for limiting risks, and the new COSO model for enterprise risk management. Click here for more information and to register now.