In order to develop a risk management program, organizations must first identify the risks they may face. The risks include financial risks, such as interest rate risks or credit risks, operational risks, such as fraud or cybersecurity risks, strategic risks, such as competitive pressure or new technology, and compliance risks, such as regulatory changes or reputational damage.
They need to assess the potential impact of these risks on the organization after identifying them. Next, strategies for managing these risks need to be developed. They can mitigate financial risks with hedges or insurance policies. Operational risks can be reduced with operational controls or cyber security measures, and strategic risks can be addressed with changes to a business strategy.
It is now imperative to monitor the effectiveness of these strategies to ensure they are managing the identified risks.
In addition, banks and credit unions should periodically review their enterprise risk management programs to ensure that they remain relevant and effective.
A successful ERM program can help identify emerging risks before they become full-blown threats, which can help the institution mitigate or avoid these risks. As the world changes, so do financial institutions’ risks. By identifying these risks early, the institution can mitigate or avoid them.
Credit unions may need to use more resources efficiently because they may have fewer resources than banks. Credit unions may have fewer resources and thus be required to dedicate more resources to risk management.
It is likely that banks will need to implement a more comprehensive risk management program because of their more stringent regulatory regime compared to credit unions.
Compared to credit unions, banks have a broader array of products and services, which can make risk management more complicated.
A bank’s or credit union’s size also affects how they handle risk. Large banks may have the resources necessary to implement a comprehensive risk management strategy. Those who operate smaller banks or credit unions may need to focus on the risks most relevant to them.