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Federal Reserve Proposes Removing 'Reputational Risk' From Bank Supervision Framework

Federal Reserve Proposes Removing 'Reputational Risk' From Bank Supervision Framework

The Federal Reserve’s proposal would codify the removal of reputational risk from bank oversight, prohibit pressure on banks to cut off lawful but politically disfavored clients, and potentially affect crypto and stablecoin firms.

Fact Check
Multiple high-authority, directly relevant primary sources from the Federal Reserve, including official press releases, formal proposal documents, and statements by leadership, confirm that the Federal Reserve has indeed proposed eliminating the use of 'reputational risk' from its bank supervision framework. The proposal is clearly described as a prohibition on using reputational risk or related supervisory tools to influence bank decisions, with requests for public comment and detailed rationale provided. These sources originate from the Federal Reserve itself, removing doubts about reliability or authenticity. The information is consistent across all sources, with no evidence contradicting the statement. This unanimity and clarity in official documentation strongly indicate that the statement is accurate.
Summary

The U.S. Federal Reserve has proposed a rule to formally codify the removal of “reputational risk” as a factor in bank supervision, aiming to prevent regulators from pressuring banks to sever ties with lawful customers, including cryptocurrency firms. The proposal, open for a 60-day public comment period from Feb. 23, would prohibit supervisors from encouraging or compelling banks to deny services based on political views, religious beliefs, or involvement in lawful but politically disfavored businesses. Vice Chair for Supervision Michelle W. Bowman stated that discrimination on such bases is unlawful and outside the Fed’s supervisory framework. The move follows prior steps by the Fed and the Office of the Comptroller of the Currency to eliminate reputational risk from examinations. The proposal also indicates that permitted payment stablecoin issuers may be included within the definition of covered banking organizations after separate rulemakings. Recent cases of alleged debanking, including account closures involving President Donald Trump and crypto executives, have intensified scrutiny of supervisory practices. Separately, Crypto.com received conditional approval to establish Foris Dax National Trust Bank, joining other crypto firms that have secured similar national trust bank charters.

Terms & Concepts
  • Reputational Risk: A supervisory concept referring to potential harm to a bank’s public image; the Fed proposes eliminating it as a basis for restricting lawful banking relationships.
  • Permitted Payment Stablecoin Issuers: Entities authorized under forthcoming rules to issue payment-focused stablecoins, which the Fed may classify as covered banking organizations.
  • National Trust Bank Charter: A federal banking charter allowing institutions to provide custody and related services under national regulatory oversight.