National Credit Union Administration removes reputational risk from supervision and ends risk-category ratings in examinations

The National Credit Union Administration (NCUA) has stopped using reputational risk and equivalent concepts in its examination and supervisory process, and has also discontinued the practice of assigning ratings to examination Risk Categories or Risk Areas. The changes follow White House Executive Order 14331, which directs federal banking regulators to remove the use of reputational risk or similar concepts that could result in politicized or unlawful debanking. NCUA staff will no longer base supervisory concerns on reputational risk or discuss it in examinations or supervisory contacts with a credit union or credit union service organization. Review work historically grouped under reputational risk, including financial liability associated with active litigation and insider abuse, will continue to be covered in examinations as necessary. The agency is updating regulations, manuals, guidance, and training to remove reputational risk references, and has issued a Letter to Credit Unions that supersedes prior direction on the topic while those updates are completed. Separately, examiners previously assessed risk exposure across seven categories (Credit, Interest Rate, Liquidity, Transaction, Compliance, Reputation, and Strategic), but NCUA has ended the practice in response to recommendations received through AskNCUA and provided directly to Chairman Kyle S. Hauptman; examination reporting is expected to be more streamlined with greater focus on material concerns and explaining CAMELS ratings.