The Federal Reserve proposes to explicitly remove reputational risk from bank supervision

The Federal Reserve Board on Monday proposed a recommendation to explicitly eliminate reputational risk from bank supervision and is seeking public comment. The proposal reaffirms the Federal Reserve's policy against penalizing or restricting institutions due to customers engaging in legal activities. Vice Chair Michelle W. Bowman stated that it is illegal for financial institutions to refuse customers based on political views, religious beliefs, or legal but unpopular businesses, and such practices should not exist within the Federal Reserve's supervisory framework. In June this year, the Federal Reserve announced that reputational risk would no longer be a component of bank supervisory reviews. This proposal aims to further ensure that supervisory decisions are based on substantive financial risks, while enhancing the clarity and precision of decision-making. Public comments must be submitted within 60 days after publication in the Federal Register.