Fed Moves to Permanently Drop ‘Reputational Risk’ From Bank Supervision
The Federal Reserve has proposed permanently removing “reputational risk” from its bank supervision rules, opening a two-month public comment period. This measure aims to shift regulatory focus to “material financial risks” such as credit, liquidity, and market risk—criteria that directly affect financial stability. Vice Chair for Supervision Michelle Bowman stated that removing the subjective standard will promote consistency and prevent discrimination. Crypto advocates, including Senator Cynthia Lummis, view the move as ending regulatory practices like “Operation Choke Point 2.0,” which targeted digital asset firms. Industry figures support the change but argue further Congressional action, such as the CLARITY and GENIUS Acts, is needed to provide clear, predictable banking access for lawful crypto businesses. The proposal follows recent events, including JP Morgan’s closure of Donald Trump’s accounts under alleged “reputational risk” pressure, and the FDIC’s settlement over improperly withheld documents showing federal pressure on banks to restrict crypto activity. The final rule is expected after the comment period concludes.
