In a significant policy shift, the Federal Reserve Board announced on June 23, 2025, that reputational risk will no longer be a component of its bank supervision programs. This change allows banks to engage with cryptocurrency firms without the concern of reputational damage affecting their regulatory standing. The Federal Reserve emphasized that banks must continue to maintain strong risk management practices to ensure safety, soundness, and compliance with laws and regulations. (federalreserve.gov)
The decision aligns with similar moves by other U.S. banking regulators. In March 2025, the Federal Deposit Insurance Corporation (FDIC) stated its intention to eliminate reputational risk from its supervisory framework. Acting FDIC Chair Travis Hill noted that while a bank’s reputation is crucial, most activities that could threaten it do so through traditional risk channels, such as credit or market risk, which supervisors already focus on. (americanbanker.com)
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Similarly, the Office of the Comptroller of the Currency (OCC) announced in March 2025 that it would cease examining national banks and other financial institutions for reputational risk. This coordinated approach among federal banking agencies marks a significant shift in the regulatory landscape for banks engaging with digital assets. (cointelegraph.com)
The removal of reputational risk from supervisory assessments is seen as a victory for the cryptocurrency industry, which has faced challenges in accessing banking services due to concerns over potential reputational damage. Senator Cynthia Lummis commented, “This is a win, but there is still more work to be done.” (theblock.co)
However, experts caution that while the formal removal of reputational risk may reduce instances of ‘debanking’—the practice of banks terminating relationships with clients due to reputational concerns—banks are still expected to manage all business risks effectively. Supervisors warn that reputational concerns can lead to “step-in risk,” where banks unofficially support failing partners to preserve their own standing, a practice that led to significant losses during the 2008 financial crisis. (ft.com)
The Federal Reserve’s decision also reflects a broader trend toward regulatory clarity and support for innovation in the digital asset space. By removing reputational risk from its supervisory framework, the Federal Reserve aims to create a more transparent and consistent environment for banks to engage with cryptocurrency firms. This policy shift is expected to facilitate greater integration of crypto businesses into the regulated financial system, potentially offering more stability and clearer risk management. (thepaymentsassociation.org)
Despite the positive reception from the crypto industry, some critics express concerns that eliminating reputational risk could obscure non-financial issues, impact bank stability, weaken oversight, and potentially fuel riskier bank practices. They argue that reputational risk serves as an important safeguard against potential financial and legal repercussions associated with certain business activities. (cointelegraph.com)
In conclusion, the Federal Reserve’s removal of reputational risk from its bank supervision guidelines represents a significant shift in the regulatory approach to digital assets. While it opens the door for banks to serve cryptocurrency firms more freely, it also underscores the ongoing need for robust risk management practices to ensure the safety and soundness of the financial system.
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