ALEXANDRIA, Va. – NCUA has ceased using reputation risk and equivalent concepts in the examination and supervisory process, the agency announced.
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 said.
NCUA 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, it stated.
"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," the agency said.
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 Hauptman directly, NCUA explained.
NCUA added it 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," NCUA said.
ACU/DCUC Offer Perspectives
America's Credit Unions said it supports the decision.
"America's Credit Unions appreciates the NCUA heeding our call to eliminate reputational risk as a component of its exams and supervision. As we previously shared, this component invited subjective interpretations and raised concerns about potential abuse," said Jim Nussle, America's Credit Unions president/CEO. "Credit union exams must focus on actual and measurable risks to financial condition. We thank Chairman Hauptman for listening to the industry and addressing this issue. We will continue to work with the agency to ensure exams remain focused on the safety and soundness of credit unions."
The Defense Credit Union Council, too, offered support.
“DCUC strongly supports the NCUA’s decision to remove reputational risk as a distinct category of supervisory concern," said Jason Stverak, chief advocacy officer. "For years we have cautioned against the subjectivity of reputational risk and the way it could create unnecessary regulatory burdens for credit unions that are already committed to serving their members responsibly and transparently. By eliminating this vague and often inconsistently applied standard, the NCUA is ensuring that examinations remain focused on measurable safety and soundness criteria rather than perceptions.
"Defense credit unions take their duty to service members and their families very seriously," Stverak continued. "This change strengthens confidence in the supervisory process, right-sizes regulatory oversight, and reflects the feedback DCUC and others have provided through letters and comments over the years. We commend the NCUA for recognizing the need for clarity and fairness, and we look forward to continuing our work together to ensure a strong, safe, and sustainable credit union system.”