Fed Seeks Public Feedback on Proposal To Drop “Reputation Risk” From Bank Supervision

Key Takeaways

• The Fed opened a 60-day remark play to codify the removal of “reputation risk” from supervision.

• The determination follows the Fed’s June 2025 displacement and parallel proposals from the FDIC and OCC.

• Crypto firms are watching closely, but regulators are positioning the connection arsenic a structural argumentation shift.

The U.S. Federal Reserve has opened a 60-day nationalist remark play connected a connection to formally region “reputation risk” from its slope supervision framework.

The connection would codify steps the Fed began taking successful 2025 to portion “reputation risk” retired of its introspection programs.

It would besides formally refocus supervision connected measurable threats tied straight to information and soundness.

Vice Chair for Supervision Michelle Bowman said the alteration is intended to code concerns that the conception of estimation hazard has been applied successful ways that are “vague and inherently subjective.”

She added that the model has besides been linked to troubling instances of “debanking.”

“Reputation risk” has historically referred to the accidental that antagonistic publicity oregon nationalist cognition could harm a bank’s concern oregon fiscal standing.

Unlike credit, liquidity, oregon marketplace risk, however, reputational hazard tin beryllium hard to quantify.

Bowman argued that the class has created inconsistency successful supervision and tin run arsenic a catch-all that pulls attraction distant from halfway fiscal risks.

She besides warned that reputational concerns tin amusement up successful informal examiner communications, which banks whitethorn dainty arsenic beardown signals adjacent erstwhile they are not ceremonial findings.

The Fed’s connection does not suggest banks should disregard reputational considerations successful their ain interior decisions.

Instead, it aims to forestall examiners from utilizing “reputation risk” arsenic a supervisory tool.

Examiners would request to framework concerns done established financial, operational, oregon compliance lenses.

The rulemaking builds connected a June 2025 Fed announcement stating that reputational hazard would nary longer beryllium portion of its introspection programs and that the cardinal slope had begun removing references to the word from supervisory materials.

The existent connection is designed to “memorialize” that alteration done the ceremonial rulemaking process. This would marque the removal much durable and transparent.

The Federal Reserve’s determination aligns with parallel actions by different U.S. slope regulators.

In October 2025, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) issued a associated connection to likewise prohibit the usage of estimation hazard successful supervision.