The Federal Reserve has opened a 60-day public comment period on a proposal to permanently remove “reputation risk” from bank supervision. Issued in Washington, the proposal follows a policy shift made in June and is meant to tie bank oversight more closely to measurable financial risks while answering long-running concerns about debanking.
If adopted, the rule would formalize the Board’s earlier decision to exclude reputation risk from bank examinations. The proposal also repeats a key point: supervisors should not punish banks for serving customers engaged in lawful activity.
Bowman says the current concept distracts from measurable risk
The Board said the change is designed to make supervision clearer and more precise by grounding it in material financial risks. Michelle Bowman, the Fed’s Vice Chair for Supervision, said reputation risk introduced variability into examinations and pulled attention away from credit, liquidity, and market risks. She also said discrimination based on political views, religion, or lawful business activity violates the law.
The Fed did not frame the move as a loosening of standards. Banks, it said, must still maintain strong risk management practices and remain in compliance with applicable regulations.
Final rule would follow the comment period
The public comment window lasts two months. After that, the Federal Reserve said it plans to publish a final rule in the Federal Register. The Board described the proposal as its most binding action so far on this issue, moving beyond guidance and into formal rulemaking.
Crypto banking access returned to the center of the discussion
The proposal quickly drew responses from lawmakers and industry participants. Senator Cynthia Lummis said the move was overdue. She had previously pointed to internal Fed materials during a Senate Banking hearing and argued that regulators should not decide which lawful industries get access to banking services.
Sudhakar Lakshmanaraja of Digital South Trust said informal supervisory pressure had affected banking access for crypto firms. At the same time, he said banks also make their own decisions based on compliance demands, volatility, and competition in payments. He urged Congress to address access issues through market structure and stablecoin legislation.
Disclosure disputes and account closures add context
The announcement came after new attention on politically motivated account closures. AP News reported that JPMorgan Chase confirmed it had closed accounts linked to Donald Trump after January 6, 2021. Trump is suing the bank for $5 billion.
In a separate development, the Federal Deposit Insurance Corporation reached a settlement in a FOIA lawsuit brought by Coinbase. The case concerned withheld documents tied to crypto-related “pause letters.” Under the settlement, the FDIC agreed to revise its FOIA practices and paid $188,440 in legal fees.