Supervisory Letter - Concentration Risk

Concentration risk has increased in importance during the recent economic recession. Poor risk management of residential and commercial mortgage loan concentrations, in particular, is having an adverse effect on credit unions nationwide; resulting in significant loan losses, earnings deterioration, capital depletion, and increased credit union failures. Most of the recent large losses to the National Credit Union Share Insurance Fund (NCUSIF) are due to poor management of large concentrations in various asset classes in relation to the asset size and net worth level of the failed institutions.