Have You Reviewed Your Policies Recently?
Historically, credit unions may have been wary of making material changes to their policies, whether an A/LM policy, Liquidity policy, Investment policy or broader Financial Management policy – for fear of raising regulatory “red flags.” However, with the adoption of the final rule on interest rate risk (§741.3(b)(5)(i)), and the effective implementation date of September 30, 2012, many credit unions are finding this a great time to revisit their policies. While reviewing policy, some key questions must be asked:
- How does the policy help promote safety and soundness, while also reflecting the risk appetite of the credit union’s board and senior management?
- Have there been situations in recent history where policy limits or guidelines have “tied hands” with respect to making sound business decisions?
- Conversely, are there limits or guidelines in policy that have aided in the decision-making process, potentially saving the credit union from less than favorable outcomes?
- How can we effectively construct policy limits and/or guidelines to both satisfy regulatory requirements and aid in the decision-making process of the board and senior management?
With heightened industry awareness surrounding interest rate risk, and increasing regulatory pressure to mitigate the risk being taken by some credit unions today, would it possibly raise more regulatory “red flags” if a credit union did not revisit relevant policies prior to the September 30 implementation date? A good policy has limits and guidelines intended to promote risk management and safety and soundness. A great policy has limits and guidelines intended to promote risk management and safety and soundness, but most importantly, provisions that drive dialogue to aid in the decision-making process. While revisiting policy this year, the above questions will help take your existing policy from “good” to great.
