FDIC removes reputational risk from bank exams

The Federal Deposit Insurance Corporation (FDIC) is eliminating “reputational risk” as a supervisory category in bank examinations, according to a March 24 letter from acting chairman Travis Hill to Rep. Dan Meuser.

“Most activities that could threaten a bank’s reputation do so through traditional risk channels,” the agency stated, arguing that reputational concerns are already addressed through traditional risk management.

The FDIC has reviewed and plans to eradicate all mentions of reputational risk in its regulations, shifting focus to digital asset policy.

Hill noted the agency has been “closed for business” to blockchain firms but is now developing guidelines to enable banks to engage with digital assets.

The move follows lawmakers’ February push to prevent debanking—a practice that left 30+ crypto firms without banking services in 2023 after crypto-friendly banks collapsed.

Reputational risk historically penalised industries deemed “high-risk,” such as crypto, by discouraging banks from serving them.

The FDIC’s pivot aligns with broader efforts to reduce regulatory ambiguity for digital assets.

While the agency’s stance on crypto remains cautious, the policy shift signals a path for banks to explore blockchain without fear of reputational scrutiny.

Critics argue the change could inadvertently weaken oversight, as reputational risks often overlap with compliance failures.

However, supporters see it as a step toward regulatory clarity, particularly for sectors like crypto, which have long faced banking access challenges.

The FDIC’s move follows the Office of the Comptroller of the Currency’s (OCC) decision to cease reputational risk examinations, reflecting a coordinated effort to streamline oversight.

As the agency finalises its digital asset framework, analysts will monitor whether banks adopt more inclusive policies for emerging technologies.

For now, the removal of reputational risk categories underscores a shift toward risk-based supervision rather than subjective judgments.

Whether this fosters innovation or increases systemic vulnerabilities remains to be seen, but the FDIC’s stance marks a significant evolution in U.S. financial regulation.