- Federal Reserve will no longer instruct its examiners to use “reputational risk” as a factor when overseeing banks.
- Supervisors will instead focus on financial risks, according to updated internal guidance.
- The decision addresses concerns from the crypto industry and others, who said reputational risk was used to deny banking services.
- Senator Cynthia Lummis and the American Bankers Association welcomed the change, but some critics raised concerns about oversight.
- Other federal regulators have also relaxed restrictions, allowing banks more freedom to handle crypto-related activities.
The U.S. Federal Reserve announced it will stop using “reputational risk” as a formal part of its oversight of banks. The guidance, effective as of June 24, affects all banks supervised by the agency and aims to focus on measurable financial risk.
A statement from the Federal Reserve Board confirmed that regulatory materials will no longer reference reputational risk, and will instead encourage “specific discussions” about financial risk. The Board said examiners will receive training to ensure these changes are applied consistently, and officials will coordinate with other federal agencies for uniform practices.
Under the previous method, reputational risk—defined by the Board as the chance that negative publicity could lead to customer loss, lawsuits, or reduced income—was considered by regulators. Critics, especially from the crypto sector, argued that this led to unfair denial of banking services, notably impacting more than 30 technology and digital asset firms during a period sometimes called “Operation Chokepoint 2.0.”
Supporters of the change include Senator Cynthia Lummis, who stated on social media that aggressive reputational risk policies hurt U.S. Bitcoin and digital asset businesses. Rob Nichols, CEO of the American Bankers Association, also said, “The change will make the supervisory process more transparent and consistent.”
However, some observers voiced concerns, saying the removal of reputational risk could make it harder to identify non-financial threats, potentially making bank oversight weaker and risking stability.
Despite the change, the Federal Reserve expects banks to continue strong risk management in line with all laws. The central bank said it does not intend the move to prevent banks from considering reputational risk internally.
This adjustment is part of broader efforts by U.S. regulators to ease crypto-related banking restrictions. The Office of the Comptroller of the Currency recently confirmed that banks it supervises can trade crypto and work with third parties for such activities. Similarly, the Federal Deposit Insurance Corporation said its supervised banks can engage in crypto projects without prior approval.
For more details, view the Federal Reserve Board press release.
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