Federal Reserve Ends Use of ‘Reputational Risk’ in Bank Oversight on Crypto

Regulations

The Federal Reserve announced today that it will no longer consider “reputational risk” as a factor in bank inspections.

In a policy shift revealed just minutes ago, the central bank stated it has begun reviewing references to reputational risk across its supervisory materials and will replace them with more measurable financial risk criteria when appropriate.

While the Fed emphasized that it still expects banks to maintain strong risk management practices, it clarified that regulators will now focus more on quantifiable threats to safety and soundness, rather than subjective or public perception-related risks.

“This change does not eliminate the Fed’s expectation that banks maintain strong risk management practices,” the central bank said in its official statement.

Powell Follows Through on February Promise

Fed Chair Jerome Powell had pledged earlier this year to revise oversight language that enabled regulators to monitor banks for “controversial comments or activities.” With today’s update, Powell has delivered on that commitment, signaling a recalibration of how the Fed enforces compliance and evaluates banking practices.

The move aligns the Fed’s approach with other federal banking agencies. In March, the FDIC informed Congress it would eliminate reputational risk from its regulatory playbook. Similarly, the OCC announced plans to remove the term from its supervisory guidance.

Crypto and Political Banking Clients May Benefit

The policy change could be welcomed by Republican lawmakers and crypto industry advocates. Critics have long argued that reputational risk allowed regulators to unfairly penalize banks working with politically sensitive clients or cryptocurrency firms—even when those clients posed no direct financial threat.

By eliminating this broad and often ambiguous standard, the Fed may reduce barriers for banks serving nontraditional or controversial industries, while still holding them accountable for core financial stability.

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