Key Highlights
- The Federal Reserve Board released a proposal to remove reputation risk as a factor in bank supervision programs
- The proposal is now open for 60 days for public comments
- This change is expected to remove a major regulatory tool used to cut off crypto firms from banking access
On February 23, the Federal Reserve Board released a proposal to formally remove “reputation risk” from its bank supervision programs. This comes after the Board’s June 23, 2025 announcement that reputation risk would no longer be part of the process of examinations.
The new proposal is now open for public comment for the next 60 days. It is expected to bring focus on material financial risks. This includes credit, liquidity, and operational concerns. It will also avoid the misuse of “subjective criteria” in bank oversight.
“We have heard troubling cases of debanking—where supervisors use concerns about reputation risk to pressure financial institutions to debank customers because of their political views, religious beliefs, or involvement in disfavored but lawful businesses,” Vice Chair for Supervision Michelle W. Bowman, stated in the press release. “Discrimination by financial institutions on these bases is unlawful and does not have a role in the Federal Reserve’s supervisory framework.”
This proposal is making it clear that the Board will not punish or stop banks from serving customers who are engaged in legal activities. It would put previous policy changes into writing, while improving clarity with better decision-making.
What it Means for the Crypto Industry
“Reputation risk” was linked with negative promotion to harm a bank’s customer base. This kind of action used to attract lawsuits. But in the last few years, this concept has faced a backlash as it was being used as a tool to suppress certain customers from the banking system.
In this crypto sector, leaders and crypto enthusiasts are calling it an element of “Operation Chokepoint 2.0.” By using this policy, banks would close accounts for Bitcoin businesses, crypto firms, and related companies simply because they were seen as “reputation risk.” Due to such kind of actions, these crypto businesses found themselves cut off from the traditional banking system. This also made them unable to access basic financial services.
The Fed’s June 2025 announcement has provided relief to the crypto sector. This announcement has removed reputation risk from supervisory material.
“The Board has started the process of reviewing and removing references to reputation and reputational risk from its supervisory materials, including examination manuals, and, where appropriate, replacing those references with more specific discussions of financial risk. The Board will train examiners to help ensure this change is implemented consistently across Board-supervised banks and will work with the other federal bank regulatory agencies to promote consistent practices, as necessary,” stated in the press release.
This kind of change was also seen in the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. Last year, these agencies jointly introduced a rule to prohibit the use of reputation risk in supervision.
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