COLUMBUS, Ohio - Bailouts, mergers and failures, oh my!
With bad news dominating the financial sector, Credit Union Journal asked a series of corporates and consultants what risk management advice they have for natural person credit unions (and in the case of the corporates: what advice they have for themselves).
Joe Ghammashi, chief risk officer for Corporate One, based here, said the key is not to think differently in a time of crisis, what is important is remembering the same safe, thoughtful standards that have kept CUs sound for decades.
CUJ: What risk management strategies is Corporate One advising its member credit unions to take right now?
Ghammashi: The advice is the same. I think credit unions have always been conservative in their lending practices, which is why they are not as hurt as other financial institutions by what is going on. There is an opportunity for credit unions to capitalize on banks' unwillingness to lend right now. But if they get into areas of lending they were not involved in before, then they need to remain prudent and do their homework.
From a risk management standpoint, you hear a lot about how banks are insured, but not enough is said that credit unions are insured, also. We want to make sure credit unions don't lose deposits they shouldn't lose because there isn't much publicity about credit union deposits being insured.
CUJ: Do you think corporate CUs need to change their approach to risk management in light of the market shakeout and government bailout?
Ghammashi: Corporates need to change their mindset about what is diversification. Most corporates diversify based on dollars-capital in this, capital in that. We have learned the same dollar exposure depending on the sector you are exposed to has a different level of risk to the capital. If a corporate has $100 million in agencies and $100 million in mortgage portfolios, it is not really diversified because there is different risk.
Corporate One looks at how much capital is a risk for any particular sector, and we govern accordingly.
CUJ: What sort of "risks" need to be managed by corporate CUs?
Ghammashi: Right now, it is all about liquidity for the corporates. I hate to call what is going on in Congress a "bailout" because it really is not a bailout. If the rescue plan does happen, that gives us a better mark than a fire sale mark, but it only helps liquidity to a certain extent. Corporate credit unions still have to manage their liquidity very closely; that is the name of the game right now.
CUJ: Do you believe there are any "risks" in the market that natural-person or corporate CUs are overlooking or require a different approach?
Ghammashi: More than a particular risk, the attitude toward risk management needs to change. Some credit unions do the minimum to meet NCUA requirements-that needs to change.
Risk management needs to become part of how we do business. We need to understand there is risk in what we do and managing that risk is not an optional thing. We can't do the minimum.(c) 2008 Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com/ http://www.sourcemedia.com/
