Fed removes reputational risk from crypto bank supervision

The Federal Reserve announced on June 23 that it will no longer consider reputational risk in its bank examination programs, signaling a shift toward focusing solely on measurable financial risks.

This policy change removes subjective criteria that critics argued unfairly targeted digital asset businesses and limited banks’ willingness to serve crypto companies.

The Fed is reviewing and updating supervisory materials to eliminate references to reputational risk and will train examiners to ensure consistent implementation across supervised banks.

While reputational risk is removed from supervision, banks remain responsible for maintaining sound risk management and complying with applicable laws and regulations.

This move aligns with similar steps taken by the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC).

Together, these changes address longstanding concerns that reputational risk assessments discouraged banks from offering services to crypto firms.

The shift reflects a broader deregulatory agenda aiming to integrate cryptocurrencies more fully into the mainstream financial system.

“In February, I exposed the Fed’s aggressive reputation risk policies that assassinated American bitcoin & digital asset businesses. Today, the Fed announced it will scrap reputation risk as a factor in its bank supervision. This is a win, but there is still more work to be done,” Senator Cynthia Lummis commented on social media platform X.

“One key step toward ending debanking & Operation Chokepoint 2.0 but some of the tools used to effectuate that sad chapter in banking history are still in place,” noted Caitlin Long, CEO of Custodia Bank.

The Federal Reserve’s decision is expected to accelerate the adoption of cryptocurrencies by reducing barriers for banks to offer crypto-related services.