by Will Rogers, Jr.
It takes a special kind of Washington brilliance for a regulator to decide the greatest threat to the republic is its own discretion and then propose a rule to rescue us from itself. But here we are.
The NCUA has unveiled a proposal that essentially says: “We hereby forbid ourselves from misbehaving. We don’t trust ourselves either.”
In a normal world, regulators create guardrails for the people they regulate. Only in our nation’s capital does an agency build guardrails to keep itself from driving off the road.
The Rule’s Premise: Reputation Risk Isn’t Real
This proposal seems to assume that reputation risk is some imaginary creature—like Bigfoot, or a cheerful airline fee.
One wonders whether the drafters have heard of a quaint little story called Wells Fargo, where an institution spent years rebuilding trust after opening millions of fake accounts. But perhaps NCUA thinks that was all just a marketing misunderstanding.
If the agency truly believes reputation risk is fictional, one hopes they never Google “NCUA failures” or, heaven forbid, read their own Inspector General reports.
Who Exactly Is Being Protected Here?
The proposed rule claims to stop NCUA from pressuring a credit union to decline accounts for certain businesses: liquor stores, cannabis operations, burlesque venues, adult-film producers, and so forth.
One might ask: Has this ever happened? Even once? Anywhere?
No.
This is Washington’s favorite sport: solving imaginary problems so it can avoid the real ones.
Meanwhile, the real harm that does exist: merger-driven CEO enrichment, member disenfranchisement, sham elections, and sending member savings to buy bank shareholders’ at premiums, goes unaddressed because someone must ensure the men’s club dancers of America are free to open checking accounts. The republic is safe.
The Greatest Burden: Fixing What Isn’t Broken
Fixing real problems is difficult. Fixing imaginary ones is far easier, and far more wasteful.
Rules like this drain time, staff attention, and credibility. Worst of all, they distract the agency from the issues actually hurting members:
- selling strong, local credit unions to distant ones,
- conducting board elections with all the transparency of a papal conclave,
- and using member capital to fund bank-acquisition premiums.
But at least NCUA has now protected the nation from the nonexistent threat of ideological debanking.
Reputation Risk: It Exists (Even if NCUA Pretends Otherwise)
Reputation isn’t a theoretical construct. It is the currency of leadership.
It evaporates when leaders substitute ideology for competence.
It collapses when institutions forget who they serve.
It disappears when regulators look the other way, or worse, when they look inward and pass rules to restrain what they themselves might do.
If NCUA doubts that reputation risk is real, a previous post about NCUA’s morally incompetent General Counsel and Chief Ethics Officer has already written the case study for them: A Culture of Impunity, a chapter the agency should revisit with a box of tissues handy.
The Real Absurdity
This proposal doesn’t make the agency strong. It makes it look frightened. afraid of its own staff, its own judgment, and its own shadow. It solves a problem that does not exist, while ignoring several that are eating the system alive.
Proposing this in order to curry favor with ideological overseers does not enhance NCUA’s standing. It diminishes it. It invites laughter in all the wrong places.
A Modest Suggestion
If NCUA wants to improve its reputation, there is a simpler way than pretending reputation risk doesn’t exist: Let this rule die quietly. Slip it into a drawer. Close the drawer. Lose the key.
As Will Rogers, senior advised: “Never miss a good chance to shut up.”
We live in odd times.
hashtag#CEOs, I know you’ve had frustrating encounters with auditors and regulators. They can feel burdensome, even annoying. But this latest move from National Credit Union Administration (NCUA) isn’t a win for the reduction of “regulatory burden”—it’s something far more concerning.
Although the headlines highlight the elimination of reputation risk, please read further. In addition to eliminating reputation risk as a rating, NCUA has discontinued assigning ratings to all seven risk categories:
• Credit
• Interest Rate
• Liquidity
• Transaction
• Compliance
• Reputation
• Strategic
Imagine someone removing all the smoke detectors from your building and telling you, “Don’t worry, we’ll let you know when we see fire.”
The purpose of these risk ratings was never busywork. At the aggregate level, they provided field offices, regions, and national leadership with a top-down view of where risk was accumulating. From a staffing standpoint, if a credit union’s liquidity risk was rated high, it signaled the need for additional expertise at the next examination.
Examiners and ERM professionals assess each category based on quantity, direction, and the quality of risk management. The point was never to penalize higher-risk profiles. It was to ensure that if you accepted a higher risk, your management practices were robust enough to handle it.
America’s Credit Unions, NASCUS, and American Association of Credit Union Leagues
How is this a win for the members and the safety and soundness of credit unions? Why do we only hear about tax status, and none of these moves requested are discussed with the same intensity?
A couple of foot notes: NCUA Credit Risk Webinar
On July 15, 2025, in an NCUA (https://lnkd.in/ednAJjCE) credit risk webinar, an examiner (Min 13:49) discussed the benefits of key concepts like risk appetite, risk tolerance, and risk capacity. Those are excellent tools for boards and executives. They’re the backbone of modern ERM.
But here’s the contradiction: NCUA is now saying those concepts are helpful for credit unions to adopt, while simultaneously discontinuing examiner use of risk ratings for the seven categories (credit, liquidity, interest rate, compliance, transaction, reputation, and strategic).
National Credit Union Administration:
Additional Actions Needed to Strengthen Oversight
On Sept. 23, 2021, the Government Accountability Office issued a report stating NCUA has opportunities to improve its use of supervisory information to address deteriorating credit unions. By more fully leveraging the additional predictive value of the CAMEL component ratings, NCUA could take earlier, targeted supervisory action to help address credit union risks and mitigate losses to the NCUSIF. As of today, one of the recommendations is still open, and another is partially addressed.
END
As Hauptman tries to burnish his reputation with the administration’s anti-government ideology, the dangers of a single political point of view determining regulatory priorities in a so-called independent agency becomes clear.
This press release is not about ensuring the safety and soundness of members’ funds or enhancing the cooperative systems critical roles. It is simply posturing for another assignment in an administration bent on governmental disruption.
The financial and institutional integrity of the cooperative system requires a competent, active regulatory oversight. Institutions that manage financial assets for others are especially vulnerable to self-dealing. That is why almost every form of money lending, transfer, safe-keeping and advice is subject to governmental licensing and oversight.
Without effective supervision not only will credit unions continue to be lost, the playing field will become crowded with internal and external predators trying to cash in on the abdication of, and disrespect for, regulatory oversight.