Plus, an analysis of how to satisfy your regulator with your approach to teaching them
Sponsored by Plansmith
Regulatory guidance states that the board of directors has the ultimate responsibility for the risks undertaken by an institution, including interest rate risk and liquidity management.
The board is typically made up of a diverse group of individuals from varying backgrounds and career paths. Unlike most positions within a financial institution, a board member does not necessarily come from a credit union background. One board could easily include a local entrepreneur, a farmer, a financial planner, a retired financial institution CEO, and a local insurance agent, while another board could be comprised of almost all former credit union managers. It’s often the most differing group in a similar role across financial institutions. So, since one size does not fit all, how do you train directors for their position on the board?
First, it’s important to determine the primary risk areas that directors should be overseeing—that is, credit, liquidity, interest rate, compliance, strategic, transaction and reputation risk. Moreover, directors must understand the internal control structures, including measurement systems and models, at the institution that are used to monitor these risks.
While it may be easy to define the key risk areas, the real challenge often is ensuring each director is properly trained on them.
Director Training Resources from NCUA
A good place to start is with the resources regulators themselves provide. In fact, the National Credit Union Administration offers detailed articles and complimentary videos on its website that outline their expectations, as well as hours of guidance.
- Click here to view the full set of duties of federal credit union boards of directors.
- Click here to review an outline of required credit union training, including specifics regarding the board.
- Click here to review the NCUA’s director training webinar series.
While this is a great place to start, many of our clients don’t have time to wade through and disseminate the recommendations from these government sites. Many also find them too broad and prefer to approach the board with something more personalized. So, let’s examine other avenues available.
Other Resources for Teaching Your Board About Risk
1. Do it yourself. Simply put, you can train the board yourselves. If you have the talent and the experience within your organization, those individuals with expertise can take it upon themselves to create, implement, and track a training program. As long as you’re willing to put the time and effort in, this is possible. The question remains, will it be up to par for examiners?
2. Educational training videos. Video education has become an important part of modern-day life. Not surprisingly, video training is available for financial institution board training.
State and other financial associations are a great place to check for training resources. If you’re a member at one of these organizations, you may find that education is included with your membership. Some vendors may also offer education. For example, at Plansmith, we have several affordable options for premium liquidity and interest rate risk training. If you use a different risk partner, that company may offer board education as well.
The reality is that on-demand education exists, and it is not as expensive or difficult to find as you may think. Again, the question remains: Will this be enough to properly edify each director and satisfy regulators?
3. Outsourced board training. The other option for educating your board is a fully outsourced board training process. This would be the most all-encompassing option, and as such, vary in cost by the organization performing the service. Some key questions to ask when evaluating potential training providers include whether the training is personalized to your board, whether it includes a review of your risk measurement model(s) and who leads the session (is it a former examiner?). If peace of mind is what you’re looking for, this may be the option for you.
Training for anyone can be a big undertaking. Educating your board is certainly complex. However, if your directors are properly trained to thoroughly understand and be able to deliver on their risk oversight duties, examiners should be satisfied. The key is to start this process immediately if there is any doubt about your board’s current education level, so you can be confident and ready for your next exam.
Director of ALM advisory services at CUES Supplier member Plansmith, Dave Wicklund is a former senior bank examiner and capital markets expert for the FDIC. He is also a director and ALCO chairman for a bank group that employs a complex liquidity management system and uses material levels of non-traditional funding sources. If you have any questions or would like more information on board training with Plansmith, click here to send us an email.