NCUA should exclude references to reputational risk from supervisory exam programs

In a letter sent to NCUA Chairman Kyle Hauptman, America's Credit Unions requested that the NCUA consider excluding references to reputational risk from supervisory exam programs, providing parity with banks following the Federal Reserve Board's Monday announcement that it will no longer consider reputational risk in bank supervision.

The Federal Reserve Board stated it will work with federal banking regulators to ensure consistency and has already started to remove mentions of reputational risk from exam materials. The NCUA currently considers reputational risk as part of its CAMELS rating system, under the “M,” or management, component.

"Given the potential for reputational risk to be abused to discourage otherwise lawful activities, updating the NCUA’s supervisory materials to reflect a more objective, financially-oriented analysis of quantifiable harm would better serve the credit union industry," wrote America's Credit Unions Head Regulatory Advocacy James Akin in the letter to the NCUA.

The letter recommends the NCUA work with Federal Reserve supervisory staff to understand how more specific discussion of financial risk can be used in lieu of more ambiguous references to reputational injury. The NCUA should then offer credit unions an opportunity to comment on proposed revisions to its supervisory materials that had previously referenced reputational risk.