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For credit unions, a popular instrument for monitoring credit risk is a standardized risk rating system, which can serve several purposes. These systems often determine credit approval processes, covenants placed on the member business and how loans should be priced. They can also form the basis for broader risk management practices – for instance, setting the reserve, stress testing the loan portfolio, setting risk appetites and strategic planning. Unfortunately, there are no specific requirements for credit risk rating systems, though there are several expectations outlined in the NCUA Examiners Guide. That said, credit unions have the ability to customize a rating system to best fit the unique risk characteristics of their institution.

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