The Georgia Department of Banking and Finance is reminding credit unions to exercise the proper due diligence and follow-up before rolling out any new product line.
“The department has concerns that credit unions are getting into product lines for which they have little or no expertise – and with the ready acceptance of third-party vendors, seemingly abdicating their responsibilities to these third parties,” Georgia DBF Commissioner Robert Braswell said at the Georgia Credit Union Affiliates’ annual convention in May.
Excerpts from Braswell’s speech were published in the regulator’s June Financial Institutions Today monthly bulletin.
“The points in the speech pertain to when a CU is entering into any new product line. It is not a criticism of any particular product or product line,” Carol Webb, Georgia DBF director of communications and planning, told Credit Union Times. “It’s just a reminder of the proper due diligence and follow up that is needed when contemplating/entering any new product line.”
Braswell reminded credit unions to follow several steps when contemplating a new product line:
get approval from the board of directors after an appropriate assessment of risk, amend the credit union’s business plan, ensure that the credit union has a supervisor/manager with expertise in the new product area, develop policies and procedures (which should also be approved by the board), ensure there is appropriate staff; and, then begin the new line of business.
“Once the new business line gets traction, the credit union should evaluate the effect of this new product offering and include the new line in the audit function,” Braswell said. “It is imperative that credit union boards understand that they cannot outsource their responsibility to a third party. The board is responsible for setting the risk appetite for the credit union and must have ways to identify, measure, monitor and control risks.”
Boards also need to understand how their decisions regarding product lines and rates affect the balance sheet, Braswell said.
“Above-market rates or new deposit products have recently worked against some credit unions when trying to preserve the capital ratio,” Braswell said. “Because credit unions cannot go to the market to get new capital, once capital ratios decline, it is extremely difficult in this interest rate environment to produce enough earnings to augment capital in a timely fashion.”