Scrapping of Reputational Risk Rule Allows Cryptocurrency Banks to Advance Freely at the Federal Reserve
The U.S. Federal Reserve has announced a significant adjustment in its bank oversight, focusing on more tangible risks. In a move aimed at promoting objective, metrics-driven supervision, the Federal Reserve has decided to eliminate "reputational risk" from its bank examination programs[1][3][4].
This shift in focus will narrow the focus of supervisory reviews to financial, operational, legal, and compliance risks, rather than perception-based concerns. The rationale behind this change includes several key points: reputational risk often overlaps with traditional financial risks that examiners already assess, making it redundant as a standalone category[2]; the concept of reputational risk has been previously abused or used subjectively in regulatory actions, leading to concerns that it added little value for assessing the safety and soundness of banks[2]; and eliminating reputational risk from supervision prevents examiners from downgrading banks based on public perception or political pressures, addressing criticisms that reputational risk led to "de-banking" or exclusion of certain customers or industries for reasons beyond measurable risks[2].
The Fed will still expect banks to manage reputational risk internally, but this will no longer influence examination outcomes or supervisory ratings[1][3][4]. This move is part of a broader, coordinated effort with other federal regulators like the OCC and FDIC, who have made or are making similar changes to remove reputational risk from their supervisory frameworks[1][2][3].
The decision by the Federal Reserve marks a significant adjustment in regulatory oversight, focusing on more tangible risks. Examiners will receive training aligned with the updated guidance, and the Federal Reserve Board plans to coordinate with other federal banking regulators to support consistent supervisory practices[4].
The evolving nature of risk management in an increasingly complex banking environment is highlighted by this policy shift. The Federal Reserve's shift in supervisory focus reflects a broader trend toward emphasizing tangible financial risks over subjective measures. Reputational risk in the banking sector can impact a bank's ability to attract and retain clients, secure funding, and maintain overall business stability[5].
Stakeholders across the industry will be watching closely to see how this policy shift influences both regulatory approaches and the strategic priorities of banks moving forward[6]. The U.S. Federal Reserve has announced it will no longer consider "reputational risk" in its oversight of banks, a decision that signals a shift away from evaluating financial institutions based on potential public backlash or media scrutiny.
References to reputation and reputational risk in examination manuals and related materials will be replaced with more precise language focused on financial risk. This article is provided for informational purposes only, and readers are encouraged to conduct their own research and consult with a qualified financial adviser before making any investment decisions.
[1] Federal Reserve Board (2022). Supervisory Guidance on Managing Reputation Risk. [online] Available at:
- Moving forward, the regulation of banks by the Federal Reserve will primarily focus on financial, operational, legal, and compliance risks, with reputational risk no longer influencing examination outcomes or supervisory ratings.
- In order to align with this new focus, the Federal Reserve plans to modify its examination manuals and related materials, replacing references to reputation and reputational risk with more precise language focused on financial risk.
