Credit union presidents and CFOs are typically expert at analyzing loans because most of them grew up on that side of the business. But what about your credit union’s investment portfolio? And do your credit union’s board members know the basics about managing risk in the investment portfolio?

Parking significant amounts of your investment portfolio in low-yielding overnight investments or CDs may miss out on the opportunity to benefit from higher yields with only a relatively moderate increase in risk. Understanding and managing the do’s and don’ts of risk in your credit union’s investment portfolio can boost its return, thereby increasing your credit union’s net worth and dividends for members.

The applicable federal law in this area can be found in the Code of Federal Regulations or “CFR” at 12 CFR Part 703. Section 703.3 governs credit union investment policies and, among other things, states that such policies must address how each credit union will manage four kinds of risk in its investment portfolio: interest rate risk, liquidity risk, credit risk and concentration risk.

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