The Federal Reserve Board of Governors on February 23 proposed a rule change that would formally strip 'reputation risk' from its bank supervision standards. Critics have long accused regulators of using vague reputational concerns to pressure banks into cutting off services to lawful industries, particularly cryptocurrency companies.
Focus on concrete financial risks
Under the proposal, examiners must zero in on specific financial risks such as credit, liquidity, and compliance, rather than subjective assessments of a bank's public image. The rule enters a 60-day public comment period after publication in the Federal Register. Vice Chair for Supervision Michelle W. Bowman said the Fed has heard 'troubling cases of debanking' where supervisors leveraged reputation risk to push banks into dropping clients based on political views, religious beliefs, or involvement in lawful but disfavored businesses. She added that such discrimination 'does not have a role in the Federal Reserve's supervisory framework.'
Roots of Operation Chokepoint 2.0
Operation Chokepoint 2.0 refers to allegations in recent years that federal regulators pressured banks to deny services to lawful firms, especially in crypto, by invoking vague reputational concerns. This made it harder for digital asset firms to open or maintain bank accounts. The term echoes the original 2013 Operation Choke Point, a Department of Justice initiative that targeted legal businesses like payday lenders and firearm dealers. Political efforts date back to a 2025 executive order from the Trump administration aimed at ending such informal debanking. The Fed's proposal is seen as a concrete step in that direction.
Political and industry reaction
Wyoming Senator Cynthia Lummis welcomed the Fed's proposal on social media platform X, expressing hope it would 'finally put Operation Chokepoint 2.0 to rest' and help the U.S. become a global hub for digital assets. Supporters say the change will make supervision more predictable and fair for all lawful sectors, not just crypto.