- The Federal Reserve is moving to permanently remove “reputational risk” from its bank supervision standards after a 60-day comment period.
- Lawmakers and crypto advocates argue the term was used to pressure banks to deny services to digital asset firms, a practice dubbed “Operation Choke Point 2.0.”
- Policy experts say formal legislation is still needed to provide clear, lasting rules for crypto companies’ access to banking services.
The Federal Reserve has initiated a crucial 60-day public comment period on a proposal to permanently excise the subjective standard of “reputational risk” from its bank supervision framework, a move heralded by cryptocurrency proponents as the definitive end of regulatory pressure campaigns against the industry. This step formalizes a shift announced last year, directing examiners to focus solely on measurable financial risks like credit and liquidity, thereby aiming to curb what critics called informal pressure on banks to shun crypto clients.
Consequently, Vice Chair for Supervision Michelle Bowman stated this “vague and inherently subjective standard” had diverted focus from core financial risks directly affecting institutional safety. Senator Cynthia Lummis (R-WY), who previously highlighted how reputational risk was weaponized against crypto firms, applauded the move on X, asserting it’s not the Fed’s role to be “judge and jury” for banking digital asset companies.
However, policy experts caution that stopping informal pressure is insufficient without clear legislation. Sudhakar Lakshmanaraja, founder of Web3 policy body Digital South Trust, told Decrypt that Congress must “settle this through clear crypto market structure and stablecoin legislation” to establish predictable rules. Meanwhile, the action follows a JPMorgan-dimon-debanking-2e0db127f360e5dbe1d3cc975dd73703″ target=”_blank”>report that JP Morgan Chase closed former President Donald Trump‘s accounts, with Trump now suing the bank for $5 billion over allegedly politically motivated debanking.
This regulatory shift aligns with a broader administration effort, underscored by an executive order last August directing agencies to prevent “politicized or unlawful debanking.” The proposal’s comment period will close in 60 days, after which a final rule is expected to be published in the Federal Register, marking a significant step toward normalizing banking relations for the crypto sector.
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