FDIC Drops ‘Reputational Risk’ in Bank Exams
The US Federal Deposit Insurance Corporation (FDIC) is set to abandon the application of “reputational risk” in bank exams, a significant financial regulatory policy shift.
In a March 24 letter, acting FDIC chairman Travis Hill told Rep. Dan Meuser that the use of the term reputational risk to analyze banks’ activities would no longer be used. He emphasized that dangers to a bank’s reputation tend to be captured through other measurable vehicles like credit or market risks.
Policy Shift Follows OCC’s Lead
The action comes after a similar move by the US Office of the Comptroller of the Currency (OCC), which had also suspended reputational risk exams. The FDIC has carried out a thorough review and plans to remove all references to the term in its policy statements.
Implications for Digital Asset Firms
The FDIC letter clarified that banks willing to test blockchain and distributed ledger technology had previously been restricted by past policy stances. The agency now reportedly is crafting a new framework that would give banks clearer direction on how to engage with digital assets.
It comes after a February letter by lawmakers, including Meuser, that showed concern over debanking practices and requested an unveiling of crypto regulations.
End of Operation Chokepoint 2.0?
The crypto industry and other “riskier” ones have been complaining for years that regulators have used reputational risk as a weapon to bar access to banking services. During Operation Chokepoint 2.0, over 30 crypto firms were barred from banking services following the collapse of a string of crypto-friendly banks.
By taking reputational risk out of tests, the FDIC might be signaling a more nuanced approach to new industries, and possibly reducing barriers to banks that wish to serve them.
