Three steps all credit unions should take

October 22, 2012 at 7:36 am Leave a comment

As a man of a certain age, I routinely put off tests that I don’t think I should be required to go through; at least without getting dinner and a movie first.  But some things make us all a little safer even if they’re not fun and take up more time than they should.  While I join most of the readers of this blog in instinctually opposing most regulations and guidance, there are some proposals that are so intrinsic to sound management that I can’t think of a good reason why financial institutions shouldn’t carry them out.

On Friday, the Office of Comptroller of the Currency issued a guidance on stress testing for Community Banks with less than $10 billion in assets.  Of course, the  guidance has absolutely no impact on credit unions and I’m not suggesting that it should.  But it does provide some practical means for credit unions to assess their overall ability to respond to rapid changes in the economic environment.  In addition, Chapter 13 of NCUA’s Examination Guide already mandates that examiners assess a credit union’s interest-rate risk; liquidity risk; strategic risk and reputational risk as part of an assessment of a credit union’s asset liability management and this guidance provides an effective means for assessing many of those issues.

According to the OCC guidance, irrespective of size all community banks should be:

  • asking themselves plausible “what if” questions regarding their key vulnerabilities;
  • making reasonable assessments as to how much these scenarios would  impact earnings and capital; and
  • incorporating the analysis into their overall credit risk management, asset liability strategies, and strategic and capital planning processes.

The test should be consistent with its size, complexity, and portfolio risk, operation, and management.  It can range from a simple spreadsheet to the use of sophisticated modeling.

I expect that many credit unions already undergo similar exercises, but may not have formalized them in an acutal procedure or policy.  I also suspect that some small credit unions, in particular, would argue that their portfolio of investments is so basic and their product line so generic that there really is no need for such a formalized approach to assessing risk.  But even if this is true, what is the harm of breaking out a spreadsheet; looking at the numbers and asking yourself where your credit union is most vulnerable?

NCUA posts Matz radio interview

I haven’t had a chance to listen to it but NCUA has posted an hour-long radio interview that Chairwoman Matz conducted on Friday with Michael Keegan, Managing Editor of The Business of Government Magazine and host of the Business of Government Hour radio program.



Entry filed under: Compliance, Regulatory. Tags: , , , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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