Your CU Times June 25 article, “Matz DiscountsReputation Risk,” notes that of the various risk areas NCUAexaminers evaluate, some–including reputation risk–are difficult toquantify.

But consider the quantifiable aftershock of a damagedreputation: run on deposits, lost members, staff turnover, canceledvendor contracts and declining net income, to name a few. Then addthe cost of having negative stories repeated anytime theinstitution's name pops up in the media.

Reputation risk can and should be measured. This was underscoredby the Federal Reserve Board, which noted that reputational risk isthe potential for negative publicity to seriously damage aninstitution's standing in the eyes of investors and depositors.

The Fed argues reputation is largely based on a firm's stockprice reaction to a major operational or financial loss. Creditunions can't sell stock, but they do rely on membership shares,their only means of raising capital. In a very tangible way, it'seasy to conclude that, for financial cooperatives, success is onlyas good as one's reputation with members.

Many assume manufacturing is the most likely business area toproduce a crisis. But the truth is that banking tops the list, withmore major reputation crises than any other industry in the past 25years. Hard to measure? The 2012 LIBOR scandal cost Barclays Bank$450 million and forced out top management. If not bad enough,Barclays then paid out big bonuses after profits fell 30%. Someanalysts say the bank may never recover its good name.

Then there's JP Morgan. Once America's best-run bank, the“London Whale” scandal took nearly $6 billion in a day, withinvestors pushing to unseat Chairman Jamie Dimon. He survived andJP Morgan is still strong, but how many more PR hits can it take?Don't forget the Big 5 settlement over mortgage servicing andforeclosure abuses.

The first thing we tell new clients is to create a PR crisisplan alongside their business continuity plans. Financialinstitutions are especially vulnerable to reputation risk becauseconsumers trust them with their money. Even minor image problemscan damage member confidence.

Warren Buffett said it best: “It takes 20 years to build areputation and five minutes to ruin it.” For credit unions,reputation risk is too important to overlook.

Margaret J. Blankers
President
MJB Public Relations Group
Lenexa, Kan.