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

The Federal Reserve has initiated a public comment period for its proposal to permanently remove "reputation risk" from its bank supervisory framework, formalizing a policy change first clarified in June 2025. This move aims to ensure supervisory decisions focus only on material financial risks and prevent penalizing banks for serving customers engaged in lawful, albeit politically or socially sensitive, activities. Vice Chair for Supervision Michelle W. Bowman stated the Fed heard "troubling cases of debanking" where reputation risk concerns pressured institutions to cut off customers based on political views or lawful business involvement. The proposal was welcomed by figures like Senator Cynthia Lummis, who sees it as ending "Operation Chokepoint 2.0," a term used by critics to describe perceived regulatory pressure against digital asset firms. This action occurs against a charged political backdrop, including President Trump's lawsuit against JPMorgan Chase over the alleged political closure of his bank accounts.

(Source：The Block)