Fed Eliminates Reputational Risk, Pushes Crypto for Banks

The Federal Reserve (Fed) Officially Removes "Reputation Risk" Criteria in Bank Supervision The Federal Reserve (Fed) has officially eliminated the vague "reputation risk" criterion in the bank supervision process, a decision announced on Monday in Washington. Supervisors will no longer use this ambiguous index to evaluate financial institutions, ending a policy that many banks believed allowed excessive regulatory intervention, especially in cryptocurrency-related services. Instead, the Fed will focus on clearer financial risks such as liquidation, credit risk, and operational systems. The official Fed statement confirms that all references to reputation risk will be removed from guidance documents and supervision procedures. This means banks will not be penalized solely based on negative impressions, even if the activity is legal and profitable. This change comes after years of bank leaders highlighting that reputation risk assessments allowed inspectors to reject transactions based on personal bias or political pressure. Most of this reaction centered on cryptocurrency, where partnerships were often severed simply because regulators were dissatisfied with external perceptions. Currently, the Fed has synchronized with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), which had previously withdrawn from the reputation risk criterion. Banks are still required to maintain strict internal control systems, but considering public perception in specific transactions is now at the bank's discretion. In other words, the Fed will no longer overly scrutinize negative media spread, creating more favorable conditions for legal activities in the cryptocurrency field.