Loan Participations
Happy 2009 everyone! (The over/under on how many times I will mistakenly write 2008 on a check or time card is 15.)
Last week, NCUA issued guidance on loan participations. Access the guidance, Letter to Credit Unions 08-CU-26, here. Access the letter's attachment here. (If I were King of the World, I would combine both of these documents into one. This would eliminated the need to use two different links. Alas, I am not King, so for now, two links are needed.)  NCUA also issued an Aires Questionnaire on this.
The letter makes this point: loan participations are nice ways to manage a number of risks. But credit unions must use effective due diligence efforts to identify, measure, control and monitor the risk of loan participations. The letter's attachment provides a blueprint about how to go about that process.
Here are my take-aways.
- If your credit union does loan participations or may do them in the near future, this is an absolute "must read."
- This letter to credit unions is nothing more than NCUA giving you what it gave to its examiners. The attachment is a supervisory letter that NCUA distributed to its field staff. So, if your credit union uses loan participations, your examiner probably will read this before they examine your program.  For that reason, you should know what is in there.
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This guidance is just the latest example of how NCUA wants you to incorporate risk management into your day-to-day operations. If I see a trend coming, it is risk management.