In a groundbreaking move, the Federal Reserve has decided to remove ‘reputational risk’ from its bank supervision guidelines. This change, revealed in a memo shared by Eleanor Terrett on X, marks a significant shift for crypto firms that have faced debanking due to perceived risks. Here’s what you need to know.
Why Did the Federal Reserve Remove ‘Reputational Risk’?
The term ‘reputational risk’ has long been a contentious issue in banking, particularly for crypto firms. Examiners used it to justify debanking practices, often leaving crypto businesses without access to financial services. The Federal Reserve’s decision to drop this term signals a focus on tangible financial risks rather than subjective perceptions.
How Will This Impact Crypto Firms?
The removal of ‘reputational risk’ from exam manuals could lead to:
- Fewer arbitrary debanking cases for crypto businesses.
- More consistent regulatory oversight based on financial stability.
- Retraining of examiners to prioritize quantifiable risks.
What Does This Mean for Bank Supervision?
The Federal Reserve is the last major U.S. regulator to make this change. By aligning with other agencies, it aims to create a more standardized approach to bank supervision. This shift could reduce regulatory uncertainty for fintech and crypto startups.
Key Takeaways for the Crypto Industry
This policy update is a win for transparency and fairness in banking. Crypto firms may now find it easier to secure banking relationships, as examiners will no longer rely on vague reputational concerns.
FAQs
What is ‘reputational risk’ in banking?
Reputational risk refers to potential damage to a bank’s image due to its associations, such as serving crypto clients. It has been used to justify debanking.
Why was this change made now?
The Federal Reserve likely responded to industry feedback and the need for clearer, more objective supervision standards.
Will this stop all debanking of crypto firms?
Not necessarily, but it removes one major justification. Banks may still assess risks based on financial factors.
How soon will examiners be retrained?
The memo did not specify a timeline, but updates to exam manuals suggest changes will happen promptly.
Does this affect other fintech sectors?
Yes, any business previously flagged for ‘reputational risk’ could benefit from this shift.
