Ten Ways to Maximize Risk

Risk management techniques guaranteed to make your board twitch.

April 19, 2011

Most credit union managers are so risk-averse, their idea of an exciting weekend is a Weather Channel marathon.

So I thought it might be time to perk things up a bit with a tongue-in-cheek look at 10 ways to maximize risk:

1. Don’t look. My personal rule of thumb: If it’s difficult, messy, or unpleasant, act like you’re a member of Congress dealing with Social Security reform. I’m not suggesting you bury your head in the sand like an ostrich. Instead, simply bury your head in a copy of NCUA’s Supervisory Committee Guide.

2. Become a one-trick pony. Once you find something that sells well and is profitable, become all-consumed—like a dieter at an all-you-can-eat dessert buffet. While some might call this “putting all your eggs in one basket,” I say “make a really big omelet.”

3. Quantify, shmantify. Most risk managers want quantifiable measurements of risk. They probably also want something called a “salary,” so take their advice with a grain of salt. Remember, specific numbers call for specific actions, so it’s always easier to use ambiguity to weasel out of responsibility.

4. Serve only the profitable members—the fewer the better. We all know 20% of the members pay 80% of the bills, so why not dump the freeloaders? Every one of them. Then do your analysis again. Pretty soon you’ll be down to one guy named “Bob” who can’t live without your credit union (which apparently can’t live without him).

5. Insure it and forget it. The easiest way to get rid of risk is to insure it. And with rates so cheap—especially with weakly rated, fly-by-night, advertised-on-TV insurance companies—why not? I mean what could possibly happen to companies like AIG and Ambac Financial Group?

6. Leverage. Are you tired of investing tons of time and money for marginal returns? The problem isn’t your return; it’s that your bet is too small. We didn’t get to the moon with conservative ideas. We got there because the government is expert at betting with other people’s money.

7. Focus on irrelevant issues. To see if the examiners are truly reading my credit union’s risk scenario plans, I like to focus hours of staff time on such foreseeable events as asteroid impacts, zombie attacks, and one that is truly horrific—another season of “Glee.”

8. Be bleeding edge. You’re not a high-tech credit union until you’re trying technologies obviously gleaned from “Area 51.” You need to be so far ahead, even Al Gore asks you what he needs to invent next. Lack the internal aptitude to handle it?
Don’t worry. You can always outsource support to the other side of the world.

9. Pick nonsensical investments. If it’s incomprehensible, it’s gold. Here’s an actual investment offering from our local Federal Home Loan Bank: The Symmetrical Prepayment Advance. Personally, I didn’t know prepayments could even have a shape, much less be fashionable about it. Not that I care. It’s complex, confusing, and sure to be riskier than dating Lindsay Lohan.

And finally…

10. Remember: Risk and return are never related.

JAMES COLLINS is president/CEO at O Bee CU, Tumwater, Wash. Contact him at 360-943-0740 or at