TLDR
- Fed proposes rule to eliminate reputation risk from bank supervision
- Public comments due within 60 days of Federal Register notice
- Examiners directed to focus on material financial and compliance risks
- Policy states banks should not deny services for lawful activities
The Federal Reserve Board has requested public comment on a proposal to codify the removal of “reputation risk” from its bank supervision framework. The request follows earlier steps taken in June to eliminate the concept from examination programs.
The Board said the proposal aims to ensure supervisory decisions rely on material financial risks. It also seeks to improve clarity and consistency in oversight. Comments will be accepted for 60 days after publication in the Federal Register.
The Fed moves to eliminate “reputation risk” from oversight policy. ✨ https://t.co/fS1IdfkX0R
— Digital Assets Daily (@AssetsDaily) February 23, 2026
Vice Chair for Supervision Michelle W. Bowman addressed concerns about debanking. “We have heard troubling cases of debanking—where supervisors use concerns about reputation risk to pressure financial institutions to debank customers because of their political views, religious beliefs, or involvement in disfavored but lawful businesses,” she said.
Bowman added that discrimination on such bases is unlawful and has no role in the Federal Reserve’s supervisory framework. The Board stated that lawful activity alone should not justify account closures or service denials.
Focus on measurable financial risks
The proposed rule instructs examiners to focus on concrete and quantifiable risks. These include credit risk, liquidity risk, operational risk, and compliance failures. The Board said supervisory actions must be grounded in evidence and documented findings.
Under the proposal, examiners should not cite reputational concerns tied to lawful customer activity. Instead, they must assess whether a bank’s risk management meets safety and soundness standards. The Board said this approach would promote a predictable supervisory process.
The regulator noted that the change does not weaken oversight. Banks must still maintain strong internal controls and comply with applicable laws and regulations. Supervisors will continue to evaluate governance and risk management practices.
Addressing concerns about debanking
The Federal Reserve’s move comes amid reports that certain industries faced reduced access to banking services. Some firms in sectors such as digital assets and cryptocurrency have cited reputational risk concerns in account terminations.
The Board stated that financial institutions should not terminate accounts solely because a business operates in a lawful but controversial sector. It emphasized that lawful businesses must be evaluated based on financial risk and compliance record.
The proposal outlines that supervisory guidance must avoid vague standards. Examiners are directed to provide clear reasoning when citing deficiencies. The Board said this will help banks understand expectations and respond effectively.
The change also aligns with the Board’s stated focus on core financial risk. By removing reputation risk from oversight policy, the regulator seeks to center supervision on measurable factors. This includes capital adequacy, asset quality, earnings, and liquidity.
Public comment process and next steps
The Board of Governors released the proposed rule for public review. Stakeholders, including banks and consumer groups, may submit comments during the 60-day period. After reviewing feedback, the Board may revise and finalize the rule.
The proposal builds on prior announcements and reflects the Board’s current supervisory philosophy. It states that equitable access to financial services must align with safety and soundness standards. Supervisory actions must remain tied to law and evidence.
If adopted, the rule would formally eliminate reputation risk from Federal Reserve oversight policy. The Board said this would provide greater precision in supervisory decision-making while maintaining regulatory compliance requirements.
