Primary Risks

Compliance Risk

Failure to obtain bond coverage as required by the FCUA and NCUA regulations exposes a credit union to compliance risk. Recurring issues with bond coverage may lead to a higher insurance premium, which may become expensive. The NCUA may revoke a credit union’s charter if it fails to obtain bond coverage.

Additionally, if a credit union does not follow its own policies, its bond coverage may be impacted. For example, if a credit union’s board of directors approves loans outside of the lending policy, and those loans turn out to be fraudulent, the bond company may deny claims attempting to recover any resulting losses.

Reputation Risk

Reputation risk becomes a factor when credit union indiscretions, such as fraudulent acts, poor management, or other bad-faith activities, become public knowledge. Bond coverage may be sufficient to recover losses associated with an indiscretion, but the credit union’s reputation may not recover as quickly and could result in the loss of members and business. A credit union’s reputation may also be damaged if it experiences losses because it does not have bond coverage or does not have adequate bond coverage.

Transaction Risk

Transaction risk exposures associated with bond coverage, may include:

• Loss of coverage due to not paying required bond coverage premiums
• Denied claims due to untimely notification of potential losses pursuant to bond requirements

Last Updated on October 09, 2020