Braswell reminded credit unions to follow several steps when contemplating a new product line:

get approval from the board of directors after an appropriate assessment of risk, amend the credit union's business plan, ensure that the credit union has a supervisor/manager with expertise in the new product area, develop policies and procedures (which should also be approved by the board), ensure there is appropriate staff; and, then begin the new line of business.

“Once the new business line gets traction, the credit union should evaluate the effect of this new product offering and include the new line in the audit function,” Braswell said. “It is imperative that credit union boards understand that they cannot outsource their responsibility to a third party. The board is responsible for setting the risk appetite for the credit union and must have ways to identify, measure, monitor and control risks.”

Boards also need to understand how their decisions regarding product lines and rates affect the balance sheet, Braswell said.

“Above-market rates or new deposit products have recently worked against some credit unions when trying to preserve the capital ratio,” Braswell said. “Because credit unions cannot go to the market to get new capital, once capital ratios decline, it is extremely difficult in this interest rate environment to produce enough earnings to augment capital in a timely fashion.”