As information surrounding the coronavirus (COVID-19) continues to evolve, it is important that credit unions remain agile as more information becomes available about the virus and its potential implications. Organizations worldwide are preparing for the unknown and doing their very best to maintain readiness on all fronts. In today’s world, information is often valued for speed over accuracy. For that reason, it becomes much easier for misinformation to spread and poor decisions to be made because of it. From a risk management perspective, it is important to remain objective as potential implications are discussed to ensure decisions are based on a foundation of reality and not in response to unfounded claims. How we respond to this current situation can’t stop the spread of the virus or prevent future events like this from happening, however, enterprise risk management (ERM) processes can help organizations become their very best at anticipating potential risks and ultimately becoming more proactive in developing a well thought out response.
Rochdale Paragon is taking internal steps to address implications on our business, but also working to find ways to assist credit unions through the risk assessment process such that credit union leaders can remain focused on meeting the needs of their employees, their members and the collective communities they serve.
The following risk assessment components are intended to provide general direction and ideas that leadership teams should be considering as they discuss the implications of COVID-19 and other unforeseen events on their organization. While not exhaustive, it is our hope that this provides a starting point to spur thought within your organization regarding the types of risks that might manifest dependent on the scenario that comes to fruition. If your organization has any questions on the below list or has ideas for which you are willing to share with others, please don’t hesitate to reach out to us.
CREDIT UNION RISK CONSIDERATIONS
Compliance Risk
- Employee legal risk (privacy, discrimination, unfair labor practices, negligence)
- Legal risk from employees contracting the virus while at work
- Legal risk from members contracting the virus at the credit union
- Non-compliant leave policies
- Non-compliant operations due to untrained staffing filling in
- Privacy issues with sharing employee health information
Credit Risk
- Increased delinquencies due to reduced work hours (layoffs, etc.)
- Virus leads to economic recession (local)
- Virus leads to economic recession (national)
Interest Rate
- Decreasing rates increase pressure on interest rate margins resulting in decreased earnings
Liquidity Risk
- Increased loan-to-share due to loan demand resulting from low rates
- Run on deposits causing cash shortages
Reputation Risk
- Inability to staff branch locations and provide member service
- Increased sensitivity regarding perception of marketing and other communications
- Negative social media posts by employees and/or members
- Poor, ineffective or untimely communication to members and employees
Strategic Risk
- Broad community issues from economic losses (loss of tourism, travel, etc.)
- Concentration risk: vendors, suppliers, borrowers, investments
- Decreased fees / increased fee waivers
- Diminished sponsorship effectiveness due to cancelled events
- Inability to meet strategic plans/targets (slowed decisioning)
- Increased healthcare expense to the institution
- Sudden changes in loan activity (spikes, lulls)
Transaction Risk
- Decreased interchange due to decreased card usage
- Decreased staff productivity
- Diminished internet/network bandwidth affecting operations (onsite and/or remote workers)
- Forced closing of schools or other entities resulting in staffing shortages
- Inability for vendors to provide required services
- Inability to get supplies to maintain operations
- Inability to recoup funds from prepaid travel (conferences, airfare, hotel, etc.)
- Inability to staff key operations
- Inadequate or untested BCP/pandemic plan
- Increased data / cyber security issues as more personnel work remote (i.e., use of non-approved equipment, increase in BYOD, etc.)
- Increased fraud related to scams and other virus-related claims; increase fraud vulnerability due to stressed workforce
- Increased loan demand exceeding operational capabilities
- Increased use of plastic cards resulting in increased fraud, disputes, write-offs, member service issues, etc.
While the risk considerations are significant and present leadership teams with a plethora of challenges, there are also a number of potential opportunities for which leadership teams should be discussing as information surrounding COVID-19 continues to unfold. While it is not the intent to take advantage of the crisis, credit unions should consider how they might seek to fulfill their mission of contributing to the good of their employees, members and the community at-large through such event.
Some considerations include:
OPPORTUNITY CONSIDERATIONS
- Employee, member and community assistance (i.e., financial assistance, trusted communications, instill confidence regarding financial service availability, fraud education, supplies, etc.)
- Flexibility regarding loan repayment options, modifications, fee waivers, etc.
Last, as credit unions monitor the national and local news regarding the COVID-19 virus, it will be important for all responses and changes to standard corporate policy align with state and federal law. This will help to ensure continuity and legal alignment to avoid creating any new risks when implementing the controls ultimately designed to protect your organization.
Similar to the lists above, the table below is intended to provide ideas for which each organization should consider specific to their individual situation.
RESPONSE CONSIDERATIONS
Compliance Risk
- Align corporate policies with federal and state recommendations
- Follow privacy protection framework
- Review personnel policies (communicable illness, leave, medical)
Credit Risk
- Flexible loan repayment or modification options
- Offer loan specials, new loan types or fee waivers if needed
Interest Rate Risk
- Conduct frequent ALCO meetings to discuss rates and other balance sheet needs
Liquidity Risk
- Ensure adequate liquidity and maintain sufficient back-up liquidity plans
Reputation Risk
- Communication plans – update intelligence as frequently as possible
- Personnel and member education and reassurance
- Reach out to community to provide assistance (financial, education, supplies, etc.)
Strategic Risk
- Agile leadership and communication
- Cross-functional response teams that meet regularly
- Pandemic plan
- Scenario planning visited frequently with updated assumptions
- Travel restrictions; ensure updated travel policy
Transaction Risk
- Encourage personnel that are symptomatic to work from home
- Ensure full understanding of vendor and supplier potential impacts and maintain adequate backup plans
- Expand online capabilities (increase remote system availability)
- Increased fraud vigilance: don’t click on links, watch for sketchy emails, ignore online vaccination offers, be wary of charitable donation requests, be alert to “investment” opportunities, watch for malware attempts, review fraud limits and monitoring processes
- Increased use of webinars and teleconferencing
- Inform employees of illness prevention techniques and provide adequate preventative supplies
- Maintain pandemic kits (disinfecting wipes, respirators, gloves, first-aid supplies, etc.)
- Perform routine cleaning
- Review contracts for conferences and prepaid or contracted expense
- Review sponsorship contracts for pandemic language
- Review travel for refund opportunities
- Separate employees to contain spread of the virus (staggered shifts, expanded work environment, etc.)
- Work from home plans and policies
As with any crisis where the unknown is king, assumptions can be easily distorted. Risk management is about asking the right questions at the right time to ensure relevant, reliable, unbiased information is being used to make the best decisions. Our hope is that the information provided to you today will serve as a foundation as we work together to understand the risks we face and how we uncover the best possible solutions to manage them.
If you have any questions regarding the above information or if there is anything further that Rochdale Paragon can do to assist through this time, please don’t hesitate to contact us.