May 23, 2014

Hensarling to NCUA: Define 'reputation risk'

May 27, 2014 – House Financial Services Chairman Jeb Hensarling, R-Texas, wrote NCUA Board Chairman Debbie Matz and other regulators with concerns that the regulatory agencies in question are issuing "subjective judgments" based on "reputation risk," which is not an official part of the CAMELS rating system.

Regarding reputational risk, Hensarling writes, "It is not clear to me that the data that inform analysis of this type of risk - which remains too vaguely defined to deliver any predictability to those institutions you regulate – are not already accounted for in a regulator's analysis of an existing CAMELS indicator, like, for example, liquidity."

The other agencies Hensarling addressed include: the FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency.

Hensarling requested a written response by June 12 regarding whether NCUA and the other agencies consider reputational risk, what effect that risk might have on safety and soundness, and whether a negative rating of that risk could affect an otherwise well rated institution.