Federal Reserve Drops ‘Reputational Risk’ From Bank Supervision

Key Points:

• The Fed removes reputational risk from exams, responding to industry concerns about regulatory subjectivity.
• Examiners will now focus on financial risk, with updated training to ensure consistent supervision.
• Crypto firms welcomed the move, often linking reputational risk to past banking access challenges.

The Federal Reserve announced on Monday that it will no longer use “reputational risk” as a factor in supervising banks. This decision follows ongoing industry concerns about the subjectivity of the metric and its potential effect on lawful business activities.

The Fed confirmed it has started removing references to reputational risk from its supervisory materials, including examination manuals. In its statement, the central bank said it will now direct examiners to focus on specific financial risks instead.

Training and Coordination With Other Agencies

To ensure consistency, the Fed stated that examiners will be trained on the updated policy. The goal is to align examination standards across all Board-supervised banks. The central bank also mentioned plans to work with other banking regulators to maintain uniform supervision practices.

The Federal Reserve joins the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) in making this adjustment. Both agencies had previously removed reputational risk from their own examination frameworks.

Risk Management Expectations Remain in Place

The Fed clarified that this change does not lower expectations for banks to maintain effective risk management systems. It said, 

“This change does not alter the Board’s expectation that banks maintain strong risk management to ensure safety and soundness.”

Banks can still consider reputational risk in their internal processes. The Fed noted that the announcement “is not intended to impact whether and how Board-supervised banks use the concept of reputational risk in their own risk management practices.”

Journalist Eleanor Terrett noted that lawmakers had connected reputational risk standards to the debanking of crypto firms and other legal businesses. In her statement on X, she added, 

“The Fed is the last of the major banking regulators to get rid of the term.”

Meanwhile, on March 25, 2025, David Sacks revealed that the FDIC had officially removed “reputational risk” as a regulatory factor affecting crypto-related banking. As CoinCu reported, the move signaled a departure from what many viewed as a subjective barrier to banking access for legitimate cryptocurrency firms.