Reputation Risk with Examples

What is Reputation Risk?

Reputation risk is the danger that a firm will suffer a loss in public perception (or consumer acceptance) due to either:

1. a loss of confidence in the firm’s financial soundness
2. a perception of a lack of fair dealing with stakeholders

Reputation risk is often one of the outcomes of experiencing a loss in another risk category.

Example of Reputation Risk

For example, a significant credit risk experienced by a bank could create a reputational impact for the firm. Likewise, the exponential growth in technology (and the internet) could lead to operational risks such as a cyberattack.

Why is it essential to know Reputation Risk?

Reputational risk is one of the most dynamic risks stemming from any other risk. A liquidity crisis in the Bank may also lead to reputational risk. An institution’s reputation is difficult to gain back if there is a major infamous incident regarding the reputation.