The National Credit Union Administration (NCUA) announced it has ceased using reputation risk and equivalent concepts in the examination and supervisory process. These updates follow White House Executive Order 14331, Guaranteeing Fair Banking for All Americans, which requires federal banking regulators to remove the use of reputational risk or equivalent concepts that could result in politicized or unlawful debanking.
NCUA employees will no longer base supervisory concerns on reputation risk, nor will they refer to or engage in discussions about reputation risk as part of examinations and supervision contacts of a credit union or credit union service organization.
The agency will continue to include key review areas historically classified under reputation risk, like financial liability associated with active litigation and insider abuse, as part of an examination as necessary. NCUA is currently reviewing and updating regulations, manuals, guidance, and training materials to remove references to reputation risk. While these changes are made, the NCUA issued a Letter to Credit Unions that supersedes any prior direction on reputation risk in other NCUA manuals or guidance.
In addition to eliminating reputation risk, NCUA has discontinued the practice of assigning ratings to the Risk Categories (also referred to as Risk Areas) for the examination and supervision program. Historically, examiners assessed the amount and direction of risk exposure in seven Risk Categories: Credit, Interest Rate, Liquidity, Transaction, Compliance, Reputation, and Strategic. This change is in response to several recommendations provided through AskNCUA and to Chairman Kyle S. Hauptman directly.
NCUA does not expect these changes to materially change a credit union’s examination or examination report. Examination reports and other communications with credit unions will be more streamlined as examiners will focus on addressing material concerns and explaining the credit union’s CAMELS ratings.
For more information, email Lisa Quaranta.
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