ERM programs have helped credit unions weather the storm and learn to look at internal and external risks differently.
No event has illustrated the importance of having a formal enterprise risk management program more than the COVID-19 pandemic of the past year and a half.
“The initial impact of the pandemic was huge and required a significant pivot in operational plans,” says Tony Ferris, founder/CEO of CUES Supplier member Rochdale Paragon Group LLC, Overland Park, Kansas. “However, the unforeseen and broad-reaching risks and opportunities are the real issue. It’s the downstream issues that are not right in front of you that are likely to hurt, such as the accelerated adoption of electronic delivery methods, and the short- and long-term talent management implications will drastically cause us to rethink our strategies.
“Those who have mature ERM programs have been able to more effectively identify and assess these implications, allowing them to proactively drive their strategies versus simply being reactive to what hits next,” Ferris adds. “They were able to assess and reassess the new environment while still keeping in mind and in view their strategic plan and objectives.”
Craig Wilson, senior director of consulting at CUESolutions provider Experian, Costa Mesa, California, contends that the volatility of the pandemic era has intensified the need for an ERM strategy.
“When things get tough, financial institutions typically will tighten up originations criteria and maybe even do other risk mitigation activities like credit-line decreases,” he says. “But this pandemic shutdown was unique. It rhymes a bit with what happened with Hurricane Katrina and other regional natural disaster events, but then it exploded across the country. The economy is starting to form what is being referred to as a K-shaped recovery, where some professions and consumer profiles weathered the storm well, but those in service industries, the travel industry and even automotive were shut down for quite a while.
“As much as government tried to lean in and help with PPP loans, other types of forbearance and deferments, at the end of the day, there was disparate impact among consumer groups,” Wilson adds. “So, how do you prepare for that? And what are the right strategies to use to be an advocate for consumers during these challenging times? To answer those questions, it’s critical to have a framework for enterprise risk management.”
Lessons learned from the pandemic will be useful for CUs in refining their ERM strategies going forward.
“The pandemic forced credit unions to look at various internal and external risks, such as health and safety risks, quality risks, third-party risks, remote work/operational risks, access device risks—to name a few,” says Dean Stockford, president/CEO of CUES Supplier member M&M Consulting, Springfield, Massachusetts. “Coming out of the pandemic, I believe we will see credit unions expand risk management functions with stronger strategies for governance, risk management and compliance. Stronger technologies will also impact risk with enhanced real-time data.”
Based in Missouri, Diane Franklin is a longtime contributor to Credit Union Management magazine.