Reputation No More: Fed's Policy Shift Could Reshape Crypto-Bank Relationships
- Keyword Financial
- Jun 23
- 4 min read
Introduction
The Federal Reserve has announced it will no longer use "reputational risk" as a factor in its supervision and examination of banks, aligning itself with other major U.S. regulators like the FDIC and OCC. This move comes after years of criticism that the reputational risk standard was too subjective and enabled banks to deny services to certain industries, particularly cryptocurrency firms, based on perceived public image concerns rather than objective financial risks. The Fed will now focus its oversight on measurable financial risks, updating its examination manuals and retraining examiners to ensure consistent application of the new approach across all supervised institutions.
This policy shift is seen as a direct response to pressure from the crypto industry and lawmakers, who argued that the reputational risk standard led to discriminatory "debanking" practices. Banks had previously cited reputational exposure as justification for cutting off services to crypto-related businesses, creating uncertainty and limiting financial inclusion. By removing this subjective metric, the Fed aims to bring more fairness and clarity to bank supervision, ensuring that decisions are based on quantifiable risks such as liquidity, credit, and operational vulnerabilities rather than public perception or controversy.
While the Fed’s new guidelines remove reputational risk from formal oversight, banks are still expected to maintain strong risk management and compliance practices. The change increases the importance of robust internal controls and governance, as regulatory focus shifts to financial soundness and exposure management. Observers believe this could open the door for more balanced banking access for industries previously labeled as high-risk, such as crypto, cannabis, and online gaming, provided they meet financial risk standards. However, some critics warn that removing reputational risk could allow hidden risks to go undetected if banks fail to address problematic behavior internally.
