What’s your ‘risk appetite?’
Develop a statement that outlines your risk tolerance.
Organizations often prioritize risk management only during bad times, says Steve Houle, vice president, advisory service, for Catalyst Corporate Federal Credit Union.
“That’s the wrong way to manage,” says Houle, who addressed the 2019 CUNA Finance Council Conference Tuesday in New York City. “While credit unions are strong, we need to focus now on potential risks we’re facing. During bad times, we just react. Then it’s too late.”
Creating a “risk appetite statement” can help credit unions maintain a strong risk management focus, he says.
A risk appetite statement should explicitly note the level and nature of risk you’re willing and able to take to pursue your mission.
Houle says a risk appetite statement should address:
- Your existing risk profile. The current level and distribution of risks across the credit union and across various risk categories.
- Risk capacity. The amount of risk your credit union can support in pursuit of its objectives.
- Risk tolerance. The acceptable level of variation you’re willing to accept in the pursuit of your objectives.
- Attitude toward risk. Leadership’s attitude toward growth, risk, and return.
“Decide what level of risk you’re willing to take to support your strategy and include this in your asset/liability committee packet,” Houle says. “Keep in mind people, processes, and structure. If these aren’t aligned, that can cause problems.”
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