June 16, 2014

Matz: Reputation risk alone won't drive enforcement

NCUA Board Chairman Debbie Matz responded to questions from House Financial Services Chairman Jeb Hensarling about regulators' response to reputation risk.

June 16, 2014 – Concerns about reputation risk alone won't trigger NCUA enforcement action against a credit union, but findings about what led to that risk might, NCUA Board Chairman Debbie Matz told House Financial Services Committee Chairman Jeb Hensarling, R-Texas, last week.

Matz, responding to questions raised last month about how regulators address reputation risk in insured institutions, wrote back that while the agency would not force a credit union to change its business practices solely based on a reputation risk matter, it "would address the underlying unsafe and unsound condition contributing" to that risk concern.

For example, she said a credit union with an unacceptable information security program under the Gramm-Leach-Bliley Act would trigger both compliance risk and reputation risk, and NCUA would address those in its evaluation of an institution's management and liquidity during CAMEL exams.

A loss or theft of personal consumer information, she noted, could materially damage the credit union's reputation as a safe and trusted place to conduct financial transactions. "Subsequent loss of public confidence could lead to a decline in accounts and deposits, and large unexpected withdrawals could cause a run on the credit union," she wrote.

Hensarling wrote Matz and the heads of FDIC, the Federal Reserve Board and the Office of the Comptroller of the Currency seeking answers on the reputation risk issue. He also asked what effect reputation risk might have on safety and soundness and whether a negative rating of that risk could affect an otherwise well-rated institution.