Federal Reserve Proposes Elimination of Reputation Risk in Bank Supervision

On February 23, 2026, the Federal Reserve Board announced a proposal aimed at formally removing the concept of "reputation risk" from its supervisory framework for banks. This initiative is designed to ensure that financial institutions make decisions based solely on measurable financial risks rather than subjective concerns about public perception. The proposal follows a previous announcement in June 2025, where the Federal Reserve indicated that reputation risk would no longer be a factor in bank examinations.

Fed may ease crypto firms access to banks by scrapping 'reputation risk'

The primary objective of this proposal is to prevent financial institutions from debanking customers based on their political views, religious beliefs, or involvement in lawful but disfavored businesses. Vice Chair for Supervision Michelle W. Bowman stated, “Discrimination by financial institutions on these bases is unlawful and does not have a role in the Federal Reserve's supervisory framework.” The proposal seeks to codify the removal of reputation risk, thereby ensuring that supervisory decisions are grounded in material financial risks and compliance with laws and regulations.

Following earlier actions to remove reputation risk from its supervision of banks, Federal Reserve Board requests comment on proposal to codify that removalFed may ease crypto firms access to banks by scrapping 'reputation risk'Bloomberg

The move to eliminate reputation risk comes amid concerns raised by various stakeholders, including President Donald Trump, regarding the practice of debanking. Critics argue that some bank examiners have pressured financial institutions to sever ties with politically sensitive clients, even when these clients do not pose a risk to the bank's safety and soundness. The Federal Reserve's proposal aligns with similar measures from the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, which also aim to prohibit the use of reputation risk in banking supervision.

BloombergFollowing earlier actions to remove reputation risk from its supervision of banks, Federal Reserve Board requests comment on proposal to codify that removalFed may ease crypto firms access to banks by scrapping 'reputation risk'

The proposal is particularly significant for the cryptocurrency sector, which has faced challenges in accessing banking services. Following the approval of spot Bitcoin ETFs in January 2024, major asset managers like BlackRock and Fidelity have expanded their involvement in digital assets, increasing the demand for stable banking infrastructure. The removal of reputation risk could enhance regulatory predictability for banks working with crypto firms, potentially stabilizing financial access and reducing the likelihood of abrupt disruptions in bank-crypto relationships.

Fed may ease crypto firms access to banks by scrapping 'reputation risk'BloombergFollowing earlier actions to remove reputation risk from its supervision of banks, Federal Reserve Board requests comment on proposal to codify that removal

Consumer advocates have expressed skepticism regarding the prevalence of debanking, suggesting that evidence for widespread issues is limited. However, supporters of the proposal, including Senator Cynthia Lummis, have welcomed the initiative, asserting that it is not the Federal Reserve's role to act as both judge and jury for banking digital asset companies. Lummis emphasized the importance of this step in promoting the U.S. as a leader in digital finance.

Fed may ease crypto firms access to banks by scrapping 'reputation risk'

While the proposal has garnered support, some critics remain concerned about the implications of removing reputation risk entirely. They argue that without this consideration, banks may overlook potential risks associated with certain clients, which could lead to broader financial instability.

Bloomberg

The Federal Reserve has opened a 60-day public comment period for stakeholders to provide feedback on the proposal. The outcome of this consultation will determine the final implementation of the changes to the supervisory framework.

Fed may ease crypto firms access to banks by scrapping 'reputation risk'

• “We have heard troubling cases of debanking—where supervisors use concerns about reputation risk to pressure financial institutions to debank customers because of their political views, religious beliefs, or involvement in disfavored but lawful businesses,” — Michelle W. Bowman, Vice Chair for Supervision

Following earlier actions to remove reputation risk from its supervision of banks, Federal Reserve Board requests comment on proposal to codify that removal

• “it is not the Fed’s role to act as both judge and jury for banking digital asset companies.” — Senator Cynthia Lummis

Fed may ease crypto firms access to banks by scrapping 'reputation risk'