Key Takeaways
- The central bank confirmed that it has initiated a review of its examination guidelines and supervisory documentation to eliminate language referencing reputational risk.
- The Fed emphasized that banks are still expected to uphold strong internal controls, ensure compliance with all applicable laws, and manage financial risk responsibly.
In a historic move, the United States Federal Reserve has formally announced it will no longer use “reputational risk” as a factor in evaluating the conduct and supervision of banks under its jurisdiction. The decision is expected to address the longstanding concern that reputational risk was unfairly leveraged to target and discriminate against crypto firms.
In a statement released Monday, the central bank confirmed that it has initiated a review of its examination guidelines and supervisory documentation to eliminate language referencing reputational risk. These references, once used to justify risk assessments of a bank’s business relationships, will now be replaced with explicit financial risk considerations.
Central bank defines reputational risk as “the potential that negative publicity regarding an institution’s business practices, whether true or not, will cause a decline in the customer base, costly litigation, or revenue reductions.”
The change comes amid growing scrutiny over how federal agencies have treated crypto firms, with critics arguing that vague reputational assessments gave regulators undue power to restrict legitimate businesses. The practice was frequently cited in connection with “Operation Chokepoint 2.0,” a term used by crypto advocates to describe a pattern in which over 30 technology and crypto companies reportedly lost access to banking services due to perceived reputational concerns.
The Fed’s updated policy will be accompanied by new training for bank examiners to ensure the revised criteria are applied consistently. The central bank also said it plans to coordinate with other federal regulators, including the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), both of which have taken similar steps in recent months.
Despite the removal of reputational risk from federal oversight manuals, the Fed emphasized that banks are still expected to uphold strong internal controls, ensure compliance with all applicable laws, and manage financial risk responsibly. It also clarified that banks remain free to include reputational risk in their own internal frameworks, but such considerations will no longer drive federal supervision.
The announcement drew swift reaction from lawmakers. Senator Cynthia Lummis, a longtime advocate for the crypto sector, called the policy shift “a win,” noting that reputational criteria had been used to “assassinate” U.S.-based digital asset firms and deny them access to basic financial infrastructure.
The move aligns the Fed’s position with recent policy changes from other agencies. In May, the OCC confirmed that banks it oversees can conduct crypto trading and outsource digital asset services. Earlier this year, the FDIC told banks that prior approval is no longer required for entering the crypto space, so long as standard compliance practices are followed.
The Board stated it will continue working toward consistency across agencies and plans to release updates to supervisory materials as part of this ongoing reform.
