Fed moves to codify removal of ‘reputation risk’ from bank supervision amid debanking concerns

The Federal Reserve has opened a public comment period on its proposal to permanently remove “reputation risk” from its bank supervisory framework, seeking to codify a policy change first announced last year as part of efforts to address debanking concerns in the crypto industry and beyond.

The proposal builds on a June 2025 clarification that reputation risk would no longer factor into examination programs, seeking to ensure supervisory decisions are based on material financial risks and to improve clarity and precision in supervisory assessments.

With the new policy, the Fed would formalize its position that supervisory decisions should not penalize banks for serving customers engaged in lawful activities, including those associated with politically or socially sensitive sectors. Public comments are due within 60 days of publication in the Federal Register.

Vice Chair for Supervision Michelle W. Bowman said in a Monday press release that the Fed had heard “troubling cases of debanking — where supervisors use concerns about reputation risk to pressure financial institutions to debank customers because of their political views, religious beliefs, or involvement in disfavored but lawful businesses,” adding that such discrimination “does not have a role in the Federal Reserve’s supervisory framework.”

Senator Cynthia Lummis welcomed the proposal. “It’s not the Fed’s role to play both judge and jury for banking digital asset companies,” Lummis said in a post on X. “Glad to see this important step to permanently remove ‘reputation risk’ from Fed policy and put Operation Chokepoint 2.0 to rest so America can become the digital asset capital of the world.”

President Donald Trump has pledged to end “Operation Choke Point 2.0,” a term used by crypto executives and some lawmakers to describe what they view as coordinated regulatory pressure discouraging banks from serving digital asset firms.

The Senate Banking Committee’s GOP account also weighed in on X. “No American should lose access to banking services because of their political views, faith, or lawful business. This is a major step toward ending debanking,” the account said.

The Fed’s policy move lands against a charged political backdrop. President Trump filed a $5 billion lawsuit against JPMorgan Chase in January, alleging the bank closed his multiple accounts for political reasons after the January 6, 2021, Capitol attacks.

Last week, JPMorgan acknowledged for the first time in a court filing that it did close several of Trump’s accounts in February 2021, though the bank maintains the lawsuit has no merit, according to CNBC.

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