Risk Based Examinations. A Quick Overview.

Examinations have migrated considerably from the "bad old days" where an examiner would review a slew of items and report any number of minutia. If I didn't know better (I don't for sure), I would have bet big money that they were paid by the word. The reports were often useless in determining where potential risk, if any, needed to be addressed. Since then, examinations are intended to be more focused on "the forest instead of the trees". Hence the advent of the Risk Focused Examinatin Program.

Right from the NCUA examination manual; "While performing risk-focused supervision, examiners should look for sources of uncertainty within the operation of the credit union. Based on their findings and using their professional judgment, examiners will prioritize these risks by the magnitude of the potentially adverse effect on the earnings and capital of the credit union".

Regardless of what the examiners will review, your credit union should focus on risk management, it's just smart management. This includes a strategic plan with implementing policies, procedures, and internal controls necessary to manage inherent risk. The seven categories of risk for credit union supervision purposes are Credit, Interest Rate, Liquidity, Transaction, Compliance, Strategic, and Reputation risk. Ignoring any one of these risks can mean big trouble. Be sure you have policies in place that address all of these areas, and DOCUMENT your efforts to ensure that your credit union actually follows your policy and procedure. Examiners are funny about this.

Unrelated but in the news: on President Obama's discussion with children across the U.S. . . .
"The President also said that kids -- he told them if they study hard, the United States will continue to prosper. Then he added, 'But just to be safe, bone up on your Chinese.'" --Jimmy Fallon