The National Credit Union Administration (NCUA) has announced it will no longer use reputation risk or similar concepts in its examination and supervisory process. This decision is in line with White House Executive Order 14331, Guaranteeing Fair Banking for All Americans, which directs federal banking regulators to remove the use of reputational risk that could lead to politicized or unlawful debanking.
According to the NCUA, employees will not base supervisory concerns on reputation risk, nor will they discuss reputation risk during examinations or supervision contacts with credit unions or credit union service organizations.
The agency stated it will still review key areas previously considered under reputation risk, such as financial liability from active litigation and insider abuse, when necessary during examinations. The NCUA is currently updating its regulations, manuals, guidance, and training materials to eliminate references to reputation risk. In the interim, a Letter to Credit Unions has been issued that supersedes any prior direction on this topic in other NCUA documents.
Additionally, the NCUA has ended the practice of assigning ratings to Risk Categories within its examination and supervision program. Previously, examiners evaluated seven categories: Credit, Interest Rate, Liquidity, Transaction, Compliance, Reputation, and Strategic risks. This change comes after several recommendations made through AskNCUA and directly to Chairman Kyle S. Hauptman.
The agency does not anticipate these changes will significantly alter credit union examinations or reports. Examination communications are expected to be more streamlined as examiners focus on material concerns and explanations of CAMELS ratings.
The NCUA serves as an independent federal agency established by Congress to regulate and supervise federal credit unions. It manages the National Credit Union Share Insurance Fund which insures deposits for over 143 million account holders across all federal credit unions and most state-chartered credit unions.
For further information or media inquiries contact OEACmail@ncua.gov or call 703.518.6330.