NCUA: Concentration Risk Supervisory Letter to Credit Unions

Credit Union Regulatory Guidance Including: NCUA, CFPB, FDIC, OCC, FFIEC

Understanding NCUA's Letter on Concentration Risk in Credit Unions

In this episode of Samantha Shares, we review the National Credit Union Administration (NCUA)'s Letter to Credit Unions on Concentration Risk. The letter carries a detailed overview of what concentration risk implies and its significance in the management of credit unions. It offers a description of management's fiduciary responsibilities including identifying, managing, monitoring, and controlling concentration risk. The letter further discusses how poorly managed concentration risks in real estate loans have led to significant losses and elevated credit union failures. The episode explores various forms and sources of concentration risks that credit unions should pay attention to, strategies for identifying and measuring those risks, and how to develop a risk management policy. To this end, management is expected to ensure accurate reporting on concentration risks and must be prepared to undertake corrective action when risk limits are breached. The episode ends with an outline of possible steps needed to mitigate identified elevated concentration risks. The episode is sponsored by Credit Union Exam Solutions Incorporated.

00:00 Introduction and Sponsorship

00:52 Understanding Concentration Risk

02:55 Types of Concentration Risk

05:19 Largest Exposures in Credit Unions

07:09 Identifying and Measuring Concentration Risk

12:04 Managing Concentration Risk

15:51 Monitoring and Controlling Concentration Risk

19:33 Examiner's Review Procedures for Concentration Risk

22:37 Actions When Elevated Concentration Risk is Identified

24:31 Conclusion and Contact Information