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CUSOs: An option for improving credit union efficiency

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BY DR. RANDY THOMPSON

My first introduction to Credit Union Service Organizations (CUSOs) was in 1986.  I was beginning my practice as a consultant and my first client had organized a CUSO to provide investment counseling to members.  This CUSO had two primary purposes; (1) to help members to make good investments, and (2) to generate income for the credit union.

Over the years I have seen a multitude of CUSOs focused on a variety of services.  These have included the generation of mortgage and member business loans, indirect lending, investments services and sharing of core services.  Again, in each of these cases, the primary goals were to serve members and generate income.  These are notable and worthy goals.

Recently, my conversations with CEOs regarding CUSOS has shifted a bit.  Yes, income generation continues to be an important objective, but with the changing nature of the credit union world (more regulations, more oversight and more requirements) the goal of CUSOs needs to expand to further support the successful operation of credit unions.  That new goal that I think needs to be added is an efficient response to regulatory requirements.  Let me address just a few of those requirements.

The first issue is the overall management of Interest Rate Risk.  We all know that this is a hot button issue for NCUA.  Identifying and quantifying interest risk is a basic issue in all examinations.  Credit Unions are required to select and implement a system that is appropriate for their respective balance sheets.  They are also required to use that system to set appropriate IRR limits, and then model the impact of new products and services on IRR “prior to implementation of the offering”.

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