The U.S. Federal Reserve announced it will no longer require its supervisors to factor in “reputational risk” when overseeing banks—a move welcomed by the crypto industry, which has long claimed the policy was used to unjustly target and cut off crypto firms from banking services.
Industries perceived as high-risk, such as crypto, have historically struggled to secure or retain banking relationships. Critics say this scrutiny contributed to the so-called “Operation Chokepoint 2.0,” during which over 30 tech and crypto companies were reportedly denied access to U.S. banking services.
In a statement released Monday, the Federal Reserve Board said it has begun reviewing and removing references to “reputation” and “reputational risk” from its supervisory materials. These will be replaced with more precise guidance focused on financial risks.
The Fed also plans to train its examiners to apply the revised approach consistently and will coordinate with other federal banking regulators to ensure uniform implementation across the financial system.
Banks will still be required to maintain robust risk management practices
Despite the policy shift, the Federal Reserve Board emphasized that banks are still expected to uphold strong risk management practices that comply with all applicable laws and regulations.
The Board clarified that the change is not meant to affect how banks independently consider reputational risk within their own internal risk frameworks.
Previously, the Fed defined reputational risk as the potential for negative publicity—regardless of its accuracy—to harm an institution through customer loss, legal expenses, or decreased revenue.
A win for both crypto and the banking sector
U.S. Senator Cynthia Lummis criticized the previous reputational risk policies, saying they had “assassinated American Bitcoin and digital asset businesses.” She welcomed the change as a victory, but noted, “This is a win, but there is still more work to be done.”
Rob Nichols, president and CEO of the American Bankers Association, welcomed the move, stating, “The change will make the supervisory process more transparent and consistent.”
“We’ve long maintained that banks should be free to make business decisions based on sound risk management and market dynamics—not the personal views of regulators,” he added.
However, critics warned that removing reputational risk from oversight could downplay non-financial concerns, undermine regulatory safeguards, and open the door to riskier banking practices.
Regulators begin rolling back crypto banking crackdown
Other U.S. regulatory agencies have also begun easing crypto-related restrictions this year.
In May, the Office of the Comptroller of the Currency confirmed that banks under its supervision are permitted to trade cryptocurrencies on behalf of customers and can outsource certain crypto activities to third-party providers.
Similarly, in a letter issued in March, the Federal Deposit Insurance Corporation (FDIC) stated that banks and other institutions under its oversight may now engage in crypto-related activities without needing prior approval
