Credit Union Exam Solutions Presents With Flying Colors

Hey everyone.

This is mark Treichel.

And welcome back to another
episode of with flying colors.

In today's episode, we are diving
into the governance side of Elko asset

and liability management committees.

Todd Miller and I will discuss best
practices for structuring Alco charters.

Defining roles and responsibilities and
fostering an effective governance culture.

Whether you're part of a
small or large credit union.

This episode is packed with
actionable advice to strengthen

your credit unions foundation.

And here we go.

Ah, here's the episode, Todd and
I discussing all of the above.

Treichel: Todd, how are you doing today?

Todd Miller: I'm doing good this morning.

Treichel: Very good.

Glad to hear it.

And today we're going to
talk about asset liability.

And I got to go to with the acronym.

And so he loves their acronyms, ALM.

We're gonna talk about ALM and
specifically we're going to talk

about ALM reporting and different
nuances that might relate to that.

But Todd, before we jump into that
most of our listeners have probably

know what your background is, but we
might have some first time listeners

if you could give a little bit of your
background at NCUA and what you did

there before retiring a few years ago
and and switching teams like I did.

Todd Miller: I retired in
2021 after 34 years with N.

C.

U.

A.

I think I can probably break my career
down into three big, broad parts.

The 1st 3rd of my career.

I spent that as an examiner
and a problem case officers.

The middle 3rd of my career.

I spent that as a regional capital market
specialist, even developing a lot of N.

C.

U.

A.

's.

So I'm going to go through some of
the different things that we do.

And then the training for examiners.

And then the last third of my
career from 2009 and on, I had a

last year at West core with you
when they were in conservatorship.

But then I spent the last decade of my
career as a director of special actions,

supervising problem case officers.

Dealing with troubled credit unions,
and I also supervised regional capital

market specialist and regional lending
specialist in that last 3rd as well.

Treichel: So that fits perfectly with
this topic of reporting as they say,

you've forgotten more about that.

I ever knew.

So I'm looking forward to walking through.

This topic and provide credit
unions with some key points on some

things that they might be doing.

So with that, I'm going to, I'm going
to turn the keys over to you and

I'll jump in here as appropriate.

Todd Miller: I have a feeling
you remember more than you

give yourself credit for, Mark.

So today we're going to talk a
little bit about ALCO reporting.

Most credit unions, they have an
ALCO committee, they have a finance

committee, they call this different
names, but generally there's a committee

group of people in charge of managing
interest rate risk, liquidity risk.

More and more today, ALCO committees
are becoming an overall risk function.

They're in charge of managing
capital and credit quality as well.

It's very difficult to manage
liquidity and interest rate risk.

If you don't also have your fingers in
that pie of managing credit risk and

capital as well, before we talk about
Elko reporting, maybe let's just go back

and talk about Elko in general, because
these are the communities that manage it.

Most credit unions and
very large organizations.

What you'll see is committees will
have charters in smaller organization.

These committee functions will
be laid out within policies and

policy and liquidity policy.

A financial management policy,
I would just recommend credit

is even at the smaller size.

Start thinking about developing charters
for their committees where they're

putting these in 1 spot, rather than
having 5 or 6 different policies.

Saying, And ALCO is responsible for
A, B, C and policy in the ALM policy.

ALCO is responsible for X, Y,
Z and the liquidity policy.

I think it's better to just follow
the template that large organizations

do and create a committee charter and
put this committee all in one spot.

And then let's talk a little
bit about before we talk about

reporting, what should be in a
charter or what should be in your.

Policy statements regarding
an ALCO committee.

We'll use the term ALCO today, even
though a lot of parties name this

committee different things, in a
charter, they should lay out the

purpose and role of the committee.

What is the committee's purpose?

Are they going to oversee that
interest rate risk liquidity risk?

They're going to be.

In charge of capital adequacy, they're
going to have credit risk in it or not.

I do think all those pieces should be
in it, but that's not always the case.

Some committees keep credit
risk and other parts of the risk

management in other committees.

Either way, they should lay out
purpose and roles of the committee.

They should specify who's
on these committees.

Outgo committees are generally
drawn from a wide range of staff.

Usually you have a CEO, some
lending people, some member service

people, occasionally a marketing
person on there as a non voting.

Over the years, what really.

Gets to become a challenge for board
is, do you put board members on these

committees or not, and smaller credit,
especially you'll see examiners

recommend that board members be on these
committees in larger credit unions.

It's very difficult to put an unpaid board
member on a committee that has a very

significant hour and time obligation.

So what in a lot of organizations
now are mid sized and has larger

credeins is you end up seeing a staff
ALCO that handles those everyday

tactics and strategy adjustments.

And it's not uncommon to see a board
risk management or a board ALCO that's

separate, that meets less frequently.

Like I said, I think it's
very challenging to recruit.

Put board members on something like
an ALCO, because there's a lot of

daily work and board members are
not really paid for that daily work.

Your committee charter
should outline your meetings.

How frequently do you expect them to meet?

Under what conditions?

Basic responsibilities of the committee,
what are they going to be responsible for

in terms of different risk categories?

The committee's authority,
what can they or not do?

Are they responsible for pricing?

Do they get to change
investment strategies?

Can they change lending strategies
in the midst of a business

plan as conditions change?

You should lay out just exactly
what kind of authority they

have and responsibilities.

Also I would think for larger credit
unions you should lay out what can that

committee re delegate to someone else.

If you give ALCO, pricing
authority, can they do that?

Redelegate that down to a smaller
subgroup and pricing becomes a pretty

important function of communities.

Your charters policy statement should
specify reporting and we'll talk

about reports in a couple of minutes.

And your committee charter should lay
out what kind of performance metrics.

Revaluation review and evaluation
are going to be doing how well

does this committee operate?

How often do we have to relook at it?

And committee charter should probably
also lay out what kind of documentation

that committee is responsible for
and we'll talk about that in a

little bit as well under reporting.

Treichel: Good.

And so on a couple of things popped
into my head and what popped into it

is some of the conversations we've had
with credit unions over the past year.

And I do remember 1 situation
where an NCWA exam report actually.

Was requiring board participation on it.

It was in the midsize or large
category, I would say, but had

actually put in a document resolution.

And I remember us
advising the credit union.

We thought.

That had really overstep
their bounds there.

There were some issues that, that might
have triggered there to be more board

involvement in some way, but I was a
little surprised to see that NCOA was

actually saying these are the types of
folks that should be on the committee.

And then on the other side, we've
had some conversations where more and

more as at the tail end of our time
at NCOA, and even more since we left

the position of chief risk officer
is more prevalent in credit unions.

And we've seen some situations
where chief risk officers.

Have been on the committee and
have not been on the committee.

And also where where N2A was trying
to truncate what responsibilities

that chief risk officer had
as it related to the charter.

I guess in general, I would
say as you're building.

Out this charter and who's on it
and what the responsibilities are.

You might sometimes find that and see
you ask questions relative to that.

In the end, there's best practices, but
there's really what makes sense for you.

And there's not a lot.

There's not a regulation that ties to who
should be on these committees, et cetera.

Anything based on what I just
said there that you either want

to correct or maybe opine on.

Todd Miller: No, I think it comes back
to, you have a board governance structure

and the board is responsible that.

And for instance, do you put a
chief risk officer or a board

member on an ELCO committee?

I think those are individual decisions
by the credit unions and it has

to tie in what are the knowledge,
skills and ability of their entire

management staff and directors.

Do you want a school
board member on your ELCO?

Probably not.

If you have a board member, he's a CPA,
he's been a chief financial officer,

chief risk officer somewhere, and has
time available and wants to be on the

committee, absolutely make room for them.

If that fits in with the whole
culture of the organization the

chief risk officer one, I thought
that one was really interesting.

When one of our clients was told to take
their chief risk officer off of the Elko,

because I thought that was, allowing a
chief risk officer to be basically making

decisions or making decisions on risk.

But as part of that, I did some
research and even in the very,

very super large banks, Elko.

Because they're not making individual
risk decisions, like buying an

investment or what have you.

They're part of the strategy team.

Putting them there actually
probably helps their function.

It probably helps the Alco when
they've got responsibilities over

here with compliance and other issues.

And good risk managers, but you know who
to put on committees and not just Elko,

but any committee, a loan committee I.

T.

steering committee or what have you,
those are individual decisions that

boards and executive management make
and you structure those based on

the knowledge skills of your people
and the needs of the organization.

On any given place, maybe that
chief risk officer should be on

the alcohol at another place.

Maybe the chief risk officer shouldn't be
because the way you define that individual

roles and responsibilities, it's more of
a legal compliance CRM, and they don't

have the knowledge, skills and ability
to contribute, so I think you leave those

decisions to individual credit unions.

This is part of board governance and how
you set up your risk management culture.

And like I said, you put people on
committees because it meets the credit

union's needs, and they have the
knowledge, skills, and abilities to be

there, or you put them there because
you want to improve their knowledge,

skills, and abilities as you prepare
them for other roles in the organization.

That's a wrap on this episode on Elko
governance and committee charters.

If you found this helpful, please
be sure to share it with your

board members and colleagues at the
credit union or other credit unions.

And don't forget to subscribe for
more deep dives into credit union

management and strategies on how to
pass your exam with flying colors.

Todd, thanks for being a guest
again today and listeners , as I

always say, thanks for listening.

I hope you'll listen again soon.

Park Treichel signing
off with flying colors.