Agencies Propose Ban on Reputation Risk in Supervisory Programs

WASHINGTON – In a bold move to reshape the financial regulatory landscape, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) have jointly proposed a rule that would effectively ban the use of ‘reputation risk’ in their supervisory programs.

The proposed rule, set to be published in the Federal Register, defines ‘reputation risk’ as any perceived threat to an institution’s public image or perception and seeks to prohibit regulators from using this as a basis for criticism, adverse action, or unwarranted pressure on financial institutions.

Under the new proposal, agencies would no longer be able to take actions against institutions based solely on reputation risk. This includes prohibiting the closure of customer accounts or other measures that could be taken due to an entity’s political, social, cultural, or religious views, constitutionally protected speech, or lawful business activities simply because they are politically disfavored.

The move is a direct response to Executive Order 14331, ‘Guaranteeing Fair Banking for All Americans,’ which expressed concerns about the potential misuse of reputation risk as a pretext to restrict access to financial services based on political or religious beliefs or lawful business activities.

Comments on the proposal are expected to be accepted for 60 days following its publication in the Federal Register. The FDIC’s Brian Sullivan and OCC’s Stephanie Collins have been identified as key contacts for further information.

This proposed rulemaking represents a significant shift in the way financial institutions interact with regulators, aiming to create a more level playing field and protect businesses from undue regulatory scrutiny driven by reputational concerns rather than actual legal or operational risks.

RELATED: Comptroller Gould’s Rule Changes: A Smoke Screen for Bank Criminality?

RELATED: Agencies Push to Bolster Community Banks with Leverage Ratio Relief