The Blockchain Association filed a formal comment letter with the Federal Reserve on April 27, the last day of the public comment period, backing the central bank's proposal to permanently eliminate “reputation risk” from its bank supervisory framework. The letter, signed by Ashok Pinto, Executive Vice President for Legal and Government Relations, calls the concept inherently subjective and argues it was used to pressure banks into severing ties with digital asset firms without legitimate cause.
Fed's February Proposal
The Fed published its Notice of Proposed Rulemaking on February 26, seeking to codify the removal of reputation risk from supervisory programs and prohibit the Board from pressuring banks to deny services based on lawful political beliefs, religious beliefs, speech, or activities. The Association's submission states that reputation risk is “inherently subjective and difficult to assess using consistent supervisory criteria,” and notes that all safety-and-soundness concerns it purports to capture are already covered by established risk categories.
'Closing a Loophole'
The letter asserts: “Removing it does not create a gap in the supervisory toolkit; it closes a loophole.” The Association directly links reputation risk to the debanking of crypto firms under the Biden Administration. In January 2023, the Fed and other prudential regulators issued a joint statement urging banks to be alert for customers with blockchain ties, after which many banks began denying services to the industry.
The Association cites Coinbase's identification of over 20 instances where the Federal Deposit Insurance Corporation (FDIC) instructed banks to cease offering digital asset services. These examples, according to the letter, demonstrate that reputation risk functioned as a tool for targeted exclusion.
Not a Crypto-Specific Fix
Pinto warns that the proposed rule should not be seen as a crypto-specific remedy: “Reputation risk is only as neutral as the administration wielding it. The same mechanism used against the digital asset industry under the Biden Administration could be turned against any other lawful business sector under any future administration.” Fed Vice Chair for Supervision Michelle Bowman echoed the sentiment, calling debanking based on political views or lawful businesses “unlawful” and having no place in the Fed's framework.
The Association calls for coordination with the Office of the Comptroller of the Currency (OCC) and FDIC, which adopted a joint final rule on April 15 prohibiting the use of reputation risk as a basis for supervisory action, effective June 6. With that rule already in effect, attention turns to whether the Fed will move at a comparable pace. “Regulation is meant to uphold the integrity of our financial system, not to pick winners and losers based on the political winds of the day,” Pinto wrote. “Reputation risk provides neither objective nor consistent standards.”