Payment Industry Insider

Risk is a funny thing. It means different things to different people.

To be sure the common understanding revolves around loss or forfeiture. But it’s different for different folks based on what they are trying to accomplish, what they’re willing to lose.

If you decided that you didn’t want any risk in your credit union, you’d have to close your doors. You can’t be in the credit union business without risk.

You have two questions to answer:

"How much is enough?"

Let’s say you want to operate with minimum risk of loss. Maybe less than 10% of forecast earnings. That might be hard to do and still offer the kinds of products and services your members want - and can get elsewhere if you don’t offer them.

"How much is too much?"

On the other hand, if you’re going gangbusters after business and you grow too much of a certain kind of product, like real estate loans, maybe, it could throw your balance sheet composition out of balance. The resulting exposure could be more earnings forfeiture than you could overcome, should the forfeiture materialize.

It comes down to your risk tolerance, member product and service requirements, and balance in the product composition.