Credit Union Risk Management
Principles, History & Traditions
Credit Union Risk Management (CURM) is
not just a program or presentation, it's a "method of management"
designed to identify, measure and control risks created by credit
union operations. There are two "types" of risk, pure and
speculative. Pure risks (burglary, robbery, fire, disasters, etc.)
result only in loss - never a gain. Speculative risks hold out the
possibility for gain as well as loss. For example, speculative risks
include any new policy, procedure or law. You hope for gain when new
laws are passed, but face the real possibility a loss will occur if
all speculative risks are not controlled. There are five risk
control tools used in the following order: Avoid, Reduce, Spread,
Assume, and Transfer.
Credit Union Risk Management has been
around since Friedrich Wilhelm Raiffeisen, considered the founder of
the credit union movement, launched his first lending society in
1849 and his first truly "cooperative credit society" in Heddesdorf,
Germany in 1869. Raiffeisen saw an immobile class structure in which
exploitative capitalists dominated the poor. Bankers had one
approach to managing consumer lending risks: If you wanted credit,
you had better come up with an equal amount of collateral.
Raiffeisen speculated that if he formed a cooperative, run by
volunteers from the cooperative's field of membership, loans could
be approved based first on a member's character, then upon ability
to repay, and only as a last resort, on collateral. It worked! The
movement adopted the "3-C" slogan; Character first, Capacity second,
and Collateral last.
Credit union cooperatives spread from
Germany to England, France and Italy and then to Canada thanks to a
Canadian journalist, Alphonse Desjardins, who was promoting a form
of credit associations in Quebec called caisses populaires (people's
banks). The first credit union in North America was organized at
Levis, Quebec on December 1, 1900. As luck would have it, in 1908,
Desjardins was invited to speak to a group of Boston businessmen
about the feasibility of credit unions in the US. Edward A. Filene
was in his audience
The Evolution of the US Credit
Edward A. Filene is considered the
founder of the US credit union movement. A successful merchant in
Boston (Filene Stores), he was willing to put up his own money when
needed to help his employees stabilize their financial future and
create for them economic opportunities. Filene, enlisted the help of
a young lawyer, Roy F. Bergengren, and together they set out to
organize credit unions, form chapters, promote State leagues and
finally, in August of 1934, he assembled the leagues in Estes Park,
Colorado to form the "Credit Union National Extension Bureau. Later
named the Credit Union National Association (CUNA Inc.).
CUNA Mutual - "The Debt Shall
Die with the Debtor"
Small fledgling credit unions of the
1930s all faced the risk they'd loan too much to one person and go
insolvent if that person died before the loan was repaid. Therefore,
in 1935 State Credit Union Leagues, represented by CUNA, Inc.
returned to Estes Park and formed CUNA Mutual Insurance Society to
provide credit union members with Loan Protection and Life Savings
insurance. This allowed the movement to adopted the motto, "The Debt
Shall Die with the Debtor." Roy F. Bergengren became the first
Managing Director of the CUNA Mutual Insurance Society (1935-1945).
So started the evolution of what today is the CUNA Mutual Group
(CMG). CMG is the fifth control tool of Risk Management, "transfer."
Risks credit unions can't avoid, reduce, spread, or assume get
transferred through insurance or bond products created by CMG. I
recommend you obtain a copy of "The Debt Shall Die with the Debtor -
The Story of CUNA Mutual Insurance Society" through your CUNA Mutual
CUMIS - The Credit Union's
In the early 1960s, CUNA Mutual,
supported by CUNA Inc. and State Leagues, formed a property and
casualty company (CUMIS) to provide the movement with fidelity bond
products. Over the years, CUMIS bonds have evolved to fit the
special needs of credit unions around the world. By 1968, the
society was serving credit unions in thirty-five
Credit Union Risk Management -
To underscore the importance of Risk
Management methods, CUNA Mutual and CUMIS jointly funded a Credit
Union Risk Management Department starting in the mid 1960s. The
program was offered as a service of CUNA Inc. and US Credit Union
Leagues. Credit union leaders adopted Risk Management standards
focused on building a strong movement from the "grass roots."
Executives such as J. Orrin Shipe, Herb G. Wegner and Ralph Swabota
from CUNA Inc., and CUNA Mutual Presidents Charles F. Eikel, Jr.
(1964 - 1973) and Robert L. Curry (1973 - 1988) all advocated Credit
Union Risk Management methods to control losses and grow a strong
grass roots movement. Risk Management programs were driven from the
beginning by a young college professor of Risk Management at the
University of Wisconsin, Madison, Wisconsin, Doctor Richard M.
Heins. Dick Heins became President and Chief Executive Officer of
the CUNA Mutual Insurance Society in 1988. That same risk management
program, born in the 1960s is still working with credit unions on a
daily basis throughout the US. I encourage you to visit the
CUNA Mutual web site and take advantage of the many risk management
brochures, the SCAM Alert program, and other excellent risk
management services they provide.
CUNA International - The World
Council of Credit Unions
In 1970 the World Council of Credit Unions (WOCCU) replaced CUNA International as the
governing body of the world credit union movement. WOCCU has carried
risk management methods, principles, and standards to the world
movement. Thanks to WOCCU, credit unions from Wisconsin to Sydney to
Dublin to Kingston to Montreal to Asia and to Eastern Europe have
joined forces to combat losses and strengthen our global
The Filene Research Institute
Thanks again to the vision of Doctor
Richard M. Heins, the Filene Research
Institute was launched in September 1989. The purpose of
the Institute is to perform theoretical investigations and research
on consumer behavior, financial service needs, and organizational
behavior, as well as, study the relationships credit unions have to
others in the financial services industry. David Chatfield, now
President/CEO of the California Credit Union League, was the first
Executive Director of the Institute, which is now being directed by
the highly respected Bob Hoel.
A Multitude of Credit Union
There is a multitude of professional
credit union associations focused on the best interest of the
movement. You'll find a link to most at RichWoldt.com. If
you're going to succeed as a credit union risk manager, join and
support as many of these associations as you can. For it is by
coming together that we grow, joining together that we make
progress, and working together that we succeed.