ATLANTA -- Christopher Brown made it known early that he is familiar with credit unions.
"I belong to a bank and because I work for a bank regulator, you may be wondering. Yes, I am a member of a credit union, too," said Brown, senior vice president and chief financial officer at the Federal Reserve Bank of Atlanta, who pulled out his credit union membership card for all to see at the NCUA Risk Mitigation Summit.
Brown is responsible for portions of the corporate services divisions, including financial management and planning, financial statistics and structural analysis, and facilities management functions. His career with the Federal Reserves dates back to 1973 when he served as a bank examiner.
Brown said the regulator's enterprise risk management program has been in place for five years and encompasses a number of areas. The Fed's approach to ERM keeps in mind that management ultimately owns the risks and rising above silos helps to gain different perspectives, he explained as he talked about strategic, operational, credit and market risks. The latter two, he acknowledged, were not at the top of the Fed's priority less a year ago. "It's fair to say they have moved up on the list." Above all, "reputation risk is the hardest to quantify" because it's "hard to measure and hard to get your arms around it," Brown said. It's probably among the most critical to monitor because it "keeps you in business," he added.
The emergence of mobile and Internet payments led to the Fed forming the retail payment risk forum in 2008. The forum is designed to bring together expertise residing within the Federal Reserve, financial institutions, other industry participants, regulators and law enforcement. The forum facilitates collaboration among these diverse parties, all of whom share common interests in improved detection and mitigation of emerging risks and fraud in retail payments systems.
"Risk is opportunity. Your risk tolerance allows you to take advantage of those opportunities," he said.
--msamaad@cutimes.com
Foreclosure Risks Jump, Cards Are Shaky
ATLANTA -- In 2006, CUNA Mutual Group's commercial insurance division sold 500 foreclosed properties. That number more than quadrupled to 2,600 in 2008.
The astronomical increase recently led CUNA Mutual to partner with Lee & Mason Financial Services Inc. to offer a commercial foreclosure property and liability insurance policy for credit unions' member business loans. Credit unions will be able to better manage risks associated with owning an increasing number of foreclosed commercial properties, the company said.
"Fraud has no geographical boundaries," said Jack Goodwin, senior vice president, CUNA Mutual's commercial insurance division, at NCUA's Risk Mitigation Summit. "Complacency can be dangerous and expensive."
Goodwin said between 2004 and 2008, 36% of bond losses were a result of employee dishonesty followed by 19% from fraudulent deposits and 13% that occurred on premises. When credit unions provide a new service to all members or expand into a new area that they are unfamiliar with, it unfortunately sometimes opens the door for fraudulent activity, he said. Another problem is the use of outdated technology.
"The cost of insuring predictable losses is more than retaining them," Goodwin said.
In 2008, there were 645 card breaches and 46 million accounts compromised, he added. The Heartland Payment Systems card rupture may reignite efforts for credit unions and others to consider newer forms of access such as mobile phone transactions, Goodwin noted. CUNA Mutual has advised credit unions to read the company's alerts on Heartland, work with their card processors, reissue or monitor compromised cards and provide member education.
"There's no answer on where plastic cards will be in the future. Mobile access has been talked about. It has taken off in other countries."
--msamaad@cutimes.com
Small Country Regulator With Big Risks
ATLANTA -- Even though Costa Rica's financial system is relatively small, the Central American country has risk management issues seen by large bank regulators.
At NCUA's Risk Mitigation Summit, Oscar Rodriguez Ulloa, superintendent general of financial institutions for Costa Rica, spoke on which is the better strategy in foreign countries: more regulations or better supervision. When Ulloa took the helm, there was a mandate in place to upgrade the country's regulatory and supervisory practices. As part of this effort, capital requirements were raised and Basel II accords were put up for review, a timely move in light of the international financial crisis, he said.
Costa Rica's main risks are capital adequacy, credit and market related, Ulloa said. The country's financial regulator oversees 35 credit unions, 11 private-sector banks and four state banks, the latter having 53% market share.
"While we are a small country, the risks don't differ here," Ulloa said. In 1981, he helped to create and later led Corporacion Banex, one of Costa Rica's premier financial institution. "Even during those grim years of the bank's startup, it pales in comparison to what we're seeing today."
Ulloa said determining whether better supervision or more regulations is the better fit means asking if having a rigid approach will make it less efficient as the market innovates. Or, can improving the quality and preciseness of supervision make a difference.
"Success will depend on the cultural changes within the organization, which I think, is at least 50% of the problem," Ulloa said.
The current review of Basel II, for example, is welcomed. Ulloa said the model standards used in the United States are similar to those in Costa Rica. "[It's] a better bank management approach because it requires bankers not to rely on gut feelings but a cool head."
--msamaad@cutimes.com
"I belong to a bank and because I work for a bank regulator, you may be wondering. Yes, I am a member of a credit union, too," said Brown, senior vice president and chief financial officer at the Federal Reserve Bank of Atlanta, who pulled out his credit union membership card for all to see at the NCUA Risk Mitigation Summit.
Brown is responsible for portions of the corporate services divisions, including financial management and planning, financial statistics and structural analysis, and facilities management functions. His career with the Federal Reserves dates back to 1973 when he served as a bank examiner.
Brown said the regulator's enterprise risk management program has been in place for five years and encompasses a number of areas. The Fed's approach to ERM keeps in mind that management ultimately owns the risks and rising above silos helps to gain different perspectives, he explained as he talked about strategic, operational, credit and market risks. The latter two, he acknowledged, were not at the top of the Fed's priority less a year ago. "It's fair to say they have moved up on the list." Above all, "reputation risk is the hardest to quantify" because it's "hard to measure and hard to get your arms around it," Brown said. It's probably among the most critical to monitor because it "keeps you in business," he added.
The emergence of mobile and Internet payments led to the Fed forming the retail payment risk forum in 2008. The forum is designed to bring together expertise residing within the Federal Reserve, financial institutions, other industry participants, regulators and law enforcement. The forum facilitates collaboration among these diverse parties, all of whom share common interests in improved detection and mitigation of emerging risks and fraud in retail payments systems.
"Risk is opportunity. Your risk tolerance allows you to take advantage of those opportunities," he said.
--msamaad@cutimes.com
Foreclosure Risks Jump, Cards Are Shaky
ATLANTA -- In 2006, CUNA Mutual Group's commercial insurance division sold 500 foreclosed properties. That number more than quadrupled to 2,600 in 2008.
The astronomical increase recently led CUNA Mutual to partner with Lee & Mason Financial Services Inc. to offer a commercial foreclosure property and liability insurance policy for credit unions' member business loans. Credit unions will be able to better manage risks associated with owning an increasing number of foreclosed commercial properties, the company said.
"Fraud has no geographical boundaries," said Jack Goodwin, senior vice president, CUNA Mutual's commercial insurance division, at NCUA's Risk Mitigation Summit. "Complacency can be dangerous and expensive."
Goodwin said between 2004 and 2008, 36% of bond losses were a result of employee dishonesty followed by 19% from fraudulent deposits and 13% that occurred on premises. When credit unions provide a new service to all members or expand into a new area that they are unfamiliar with, it unfortunately sometimes opens the door for fraudulent activity, he said. Another problem is the use of outdated technology.
"The cost of insuring predictable losses is more than retaining them," Goodwin said.
In 2008, there were 645 card breaches and 46 million accounts compromised, he added. The Heartland Payment Systems card rupture may reignite efforts for credit unions and others to consider newer forms of access such as mobile phone transactions, Goodwin noted. CUNA Mutual has advised credit unions to read the company's alerts on Heartland, work with their card processors, reissue or monitor compromised cards and provide member education.
"There's no answer on where plastic cards will be in the future. Mobile access has been talked about. It has taken off in other countries."
--msamaad@cutimes.com
Small Country Regulator With Big Risks
ATLANTA -- Even though Costa Rica's financial system is relatively small, the Central American country has risk management issues seen by large bank regulators.
At NCUA's Risk Mitigation Summit, Oscar Rodriguez Ulloa, superintendent general of financial institutions for Costa Rica, spoke on which is the better strategy in foreign countries: more regulations or better supervision. When Ulloa took the helm, there was a mandate in place to upgrade the country's regulatory and supervisory practices. As part of this effort, capital requirements were raised and Basel II accords were put up for review, a timely move in light of the international financial crisis, he said.
Costa Rica's main risks are capital adequacy, credit and market related, Ulloa said. The country's financial regulator oversees 35 credit unions, 11 private-sector banks and four state banks, the latter having 53% market share.
"While we are a small country, the risks don't differ here," Ulloa said. In 1981, he helped to create and later led Corporacion Banex, one of Costa Rica's premier financial institution. "Even during those grim years of the bank's startup, it pales in comparison to what we're seeing today."
Ulloa said determining whether better supervision or more regulations is the better fit means asking if having a rigid approach will make it less efficient as the market innovates. Or, can improving the quality and preciseness of supervision make a difference.
"Success will depend on the cultural changes within the organization, which I think, is at least 50% of the problem," Ulloa said.
The current review of Basel II, for example, is welcomed. Ulloa said the model standards used in the United States are similar to those in Costa Rica. "[It's] a better bank management approach because it requires bankers not to rely on gut feelings but a cool head."
--msamaad@cutimes.com
