Primary Risks

Shares can have a significant impact on a credit union’s risk exposure. The nature and extent of these risks vary depending on:

  • The specific types and terms of share accounts a credit union offers

  • The existence of any share concentrations

  • Member behavior

  • Competition

  • Economic conditions

Shares can be associated with risk exposure in all seven risk areas:

Liquidity Risk

To mitigate liquidity risk, a credit union should manage its assets, liabilities, and sources of funds to maintain adequate liquidity to meet member share withdrawals, loan demand, and daily operating needs. For liquidity and CFP requirements for FISCUs, see NCUA regulation § 741.12, Liquidity and contingency funding plans.

Inadequate liquidity can lead to increased costs from borrowings, offering higher rates on deposit products, and potential losses from the sale of investments or loans. Severe liquidity problems can impair a credit union’s ability to meet its obligations or, ultimately, cause it to fail. For more information, see the Liquidity chapter of the Examiner’s Guide.

Interest Rate Risk

Shares, particularly the account types, concentrations, and pricing, are a critical component in determining a credit union’s IRR exposure. Improper pricing can lead to earnings problems or withdrawal volatility. Poorly considered terms like no-cost early withdrawal on long-term share certificates can also increase IRR. For more information, see the Sensitivity to Market Risk chapter of the Examiner’s Guide.

Strategic Risk

Shares can expose a credit union to strategic risk if the credit union does not effectively plan and manage its mix of share products, price its products appropriately, or meet its dividend obligations.

Transaction Risk

Shares may expose a credit union to transaction risk if:

  • The system of internal controls is inadequate

  • Source documentation is missing

  • Transaction processing errors occur and are not caught and fixed promptly

Weak internal controls also present the opportunity for fraud. For more information, see the Fraud chapter of the Examiner’s Guide.

Compliance Risk

Shares are subject to regulations that can be different for specific share types:

Non-compliance with applicable laws will increase compliance risk, and may also result in civil money penalties, fines, and other legal ramifications. For more information, see NCUA’s Consumer Compliance Regulatory Resources page and the Consumer Financial Protection Compliance section of the Examiner’s Guide.

Credit Risk

Overdrawn member share accounts expose a credit union credit risk due to potential loss because the credit union has advanced funds the member does not have and may be unable to repay. Credit unions may also assume credit risk if they record members’ payroll or other ACH deposits ahead of receiving credit through the clearing process. For more information, see the Lines of Credit topic in the Consumer Loans section of the Examiner’s Guide.

Reputation Risk

Shares can expose a credit union to reputation risk if:

  • The shares are improperly priced or unavailable for withdrawal

  • The credit union makes transactional errors

  • Member information is disclosed via a breach

  • Media coverage impacts member behavior

  • Fraud occurs

These conditions can lead to loss of member confidence, account closures, and share run-off. For more information, See the Shares and Member Account Red Flags topic in the Fraud chapter of the Examiner’s Guide.

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