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Credit Unions and Capital Adequacy: Managing Growth and Risk

Author

Listed:
  • R. Raymond Sant

    (Associate professor of Finance,School of Management and Business, St. Edward’s University, Austin, TX)

  • Regina W. Schroeder

Abstract

In this paper we argue that a financial institution needs to continuously monitor and assess its risk exposure in the context of capital requirements and available growth opportunities. Judicious management of the interaction between these three elements is crucial to the long term survival and growth of such an institution. We highlight different approaches to risk analysis, beyond stress testing, such as, Value at Risk and Monte Carlo simulation. We recommend that the board of directors establish a sub-committee of its directors to oversee risk management and capital control functions, and to monitor a credit union’s asset liability management activities on an ongoing basis. Efforts should also be made to increase the level of internal expertise regarding risk management and analysis with the full participation of the board, a function that should not be outsourced. In an increasingly regulated financial industry environment it is imperative that a financial institution seeks out growth opportunities while maintaining the balance between capital and risk exposure for long-term business continuity.

Suggested Citation

  • R. Raymond Sant & Regina W. Schroeder, 2012. "Credit Unions and Capital Adequacy: Managing Growth and Risk," International Journal of Business and Social Research, LAR Center Press, vol. 2(6), pages 241-255, November.
    • Handle: RePEc:lrc:larijb:v:2:y:2012:i:6:p:241-255
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    File URL: http://thejournalofbusiness.org/index.php/site/article/view/148/147
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    References listed on IDEAS

    as
    1. David C. Wheelock & Paul W. Wilson, 2011. "Are Credit Unions Too Small?," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1343-1359, November.
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    Cited by:

    1. R. Raymond Sant & Stephen B. Carter, 2015. "Acquired Credit Unions: Drivers of Takeover," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 5(8), pages 18-33, August.
    2. R. Raymond Sant & Stephen B. Carter, 2015. "Acquired Credit Unions: Drivers of Takeover," International Journal of Business and Social Research, LAR Center Press, vol. 5(8), pages 18-33, August.

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