Chairman Hensarling Challenges Regulators on Reputation Risk

House Financial Services Committee Chairman Jeb Hensarling (R-Tex.) has sent letters to four Federal banking agencies (Fed, OCC, FDIC, NCUA) challenging their use of 'reputation risk' as a factor in supervision of depository institutions.

Hensarling wrote that "it would be an abuse of regulatory discretion to use vague, subjective, and unquantifiable indicators like a firm's reputation to justify regulatory outcomes that could not otherwise be justified under an objective CAMELS analysis."

He goes on to write that the introduction of reputational risk "can all too easily become a pretext for the advancement of political objectives."

He poses three questions to the regulators and request that they respond by no later than June 12th.

Below is Chairman Hensarling's letter to NCUA.