As previously covered by InfoBytes, the NCUA announced last month that, effective immediately, reputation risk would no longer factor into its examinations and supervisory process. The agency is now attempting to codify its decision.

On October 17, the NCUA published a notice of proposed rulemaking in the Federal Register to codify the elimination of “reputation risk” from its supervision, in accordance with Executive Order 14331 (previously covered by InfoBytes here). The NCUA noted that since reputation risk was too subjective and difficult to measure, its use no longer furthered the agency’s mission to ensure safety and soundness. The agency emphasized that supervision should instead focus on concrete risks and objective criteria directly related to statutory requirements.

The proposed rule would prohibit the agency from criticizing or taking adverse action against any institution solely on the basis of reputation risk, defined as any risk that an institution’s actions could negatively impact public perception of the institution for reasons unrelated to the current or future financial condition of the institution. The proposal would also bar the NCUA from encouraging institutions to close accounts; refraining from providing services; or modifying products based on a person or entity’s political, social, cultural or religious views, constitutionally protected speech, or involvement in politically disfavored business activities.