The Federal Reserve Board announced on June 23, 2025, that it would remove the term "reputational risk" from its bank supervisory examination program. This policy shift signifies that the Fed will now assess banks based solely on measurable financial risks such as liquidity, credit, and operational exposures rather than subjective reputational concerns.
Previously, reputational risk assessments were used by banks to justify limiting or severing relationships with cryptocurrency-related firms, leading to widespread crypto debanking. Critics argued that this approach was opaque and fostered discriminatory practices against crypto companies. The Fed's decision aligns it with other major U.S. regulators—the FDIC and OCC—that removed similar language earlier this year to promote fairness and objectivity in bank oversight.
Under the new guidance, Federal Reserve examiners are receiving retraining to implement consistent, risk-based supervisory evaluations without relying on the ambiguous reputational risk factor. Banking institutions will continue to manage robust risk frameworks and may internally consider reputational risk, but regulatory decisions must be based on concrete financial data.
This shift comes amidst mounting pressure from the crypto sector and lawmakers advocating for clearer rules enabling banks to serve crypto firms legitimately without unfair barriers. Fed Chair Jerome Powell has emphasized the importance of responsible innovation and allowing banks to engage in digital asset activities within clearly understood risk parameters. His administration's move completes a coordinated three-month effort with federal regulators to modernize bank supervision standards.
The removal of reputational risk as a supervisory metric is expected to enhance clarity, fairness, and predictability in how banks evaluate crypto-related risks and relationships. It potentially paves the way for expanded banking services to cryptocurrency firms, supporting broader crypto integration into the traditional financial ecosystem.