Risk Management for Credit Unions: 5 Important Considerations

  • By: RedPen
  • May 31, 2022
Risk Management for Credit Unions
Reading Time: 3 minutes

A risk management plan for credit unions empowers board leaders to activate the appropriate safeguards needed to protect member investments.

To protect their members’ investments, credit union boards must create comprehensive risk management systems. When designing risk management for credit unions, collaboration among the board, executive management, and staff proves critical to success.

Read on to discover how credit unions can properly assess their risk appetite, identify risk, and develop an effective risk management process.

Why Does Risk Management Matter?

Enterprise risk management, the process of identifying, assessing, and mitigating risks, helps credit unions protect their assets, reputation, and members. Including devising a plan for unknown risks, or black swan events, credit union boards must plan for the following risk types:

  • Credit risk
  • Interest rate risk
  • Liquidity risk
  • Transaction risk
  • Strategic risk
  • Reputation risk
  • Compliance risk

Understanding your organization’s risk appetite is the first step in developing an effective risk management process. Risk appetite is the amount of risk that an organization is willing to assume. 

With a good understanding of your organization’s risk appetite, you can begin to implement a risk management system to monitor and mitigate risks that would hinder the credit union from achieving its strategic goals. 

Ready to create your plan for enterprise risk management? Consider the following:

Board Meeting

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Risk Management for Credit Unions: 5 Critical Components

Familiarizing your credit union leadership and board of directors with potential risks and risk management strategies offers a proactive approach for responding to credit union threats so they don’t create catastrophe. Use these 5 steps to build a risk management plan. 

1. Consider Long-term Risk

Long-term risk assessment and management is critical for credit unions. This includes understanding the current financial stability of the organization, as well as planning for potential changes in the industry and economy.

When assessing long-term risk, credit unions should consider a variety of factors, including:

  • Financial stability: How stable is the organization financially? What are the trends over time?
  • Economic conditions: What is the current state of the economy? Are there any expected changes in the near future?
  • Industry conditions: What is happening in the credit union industry and financial sector? Are there any potential changes on the horizon?
  • Regulatory environment: What are the current regulations governing credit unions? Are there any anticipated changes?
  • Technology: What technology is currently being used by credit unions? What new technologies could impact the industry?

2. Utilize Data to Guide Decision-Making 

Credit unions should make use of historical data when making decisions about risk management. Data helps credit unions identify risks, forecast their impact, and develop mitigation strategies.

When using data to guide decision-making, credit unions should consider historical data that may forecast risks in the following areas:

  • Financial data
  • Operational data
  • Member data
  • Industry data
  • Regulatory data

3. Refine Disaster Recovery Strategy 

In the event of a disaster, it’s essential for credit unions to have a plan in place to ensure they can recover quickly and efficiently. This includes having a backup plan for critical systems and data, as well as establishing procedures for business continuity.

When refining their disaster recovery strategy, credit unions should consider a variety of factors, including:

  • Backup systems: What systems and data need to be backed up? How often should backups be made?
  • Business continuity: What procedures need to be in place to ensure the credit union can continue to operate in the event of a disaster?
  • Recovery time: How quickly does the credit union need to be able to recover from a disaster?
  • Recovery location: Where will the credit union recover in the event of a disaster?
  • Testing: How will the credit union test its disaster recovery plan?

4. Utilize Technology to Manage Regulatory Compliance 

Risk management software offers a high level of security and regulatory compliance, which is required for effective governance. Technology can be a valuable tool for credit unions when it comes to managing regulatory compliance. 

When utilizing technology to manage regulatory compliance, credit unions should consider how well it integrates with current operating systems, ease of use, and whether the software automatically updates to adhere to changing regulations.

5. Define Key Risk Indicators 

Key risk indicators (KRIs) are a critical part of any risk management strategy. KRIs provide early warning signs of risk. Should KRIs raise a red flag, you should investigate immediately to mitigate the risk. Use historical credit union data to devise KRIs. For example, by knowing how many auto loans the credit union has approved in the past, you can determine the appropriate lending amount for the future. 

Power Your Credit Union With OnBoard

Credit unions need to have a well-defined enterprise risk management strategy in place to protect their assets and members. Utilizing data, technology, and KRIs helps credit unions manage risk effectively and efficiently.

OnBoard, the premier credit union software solution for managing risk, helps credit unions automate the risk management process, keep track of changes in regulations, and identify potential risks. Additionally, OnBoard is endorsed by many industry-leading organizations and associations, including the Credit Union Executives Society.


September 21 at 2:00 PM ET. August 17 at 2:00 PM ET. Leading this session will be Donna Hamlin, Ph.D. Dr. Hamlin is a corporate governance executive with thirty years of corporate governance and strategy consulting experience.

Request a free trial today to see how OnBoard helps credit unions with effective governance and risk management.