Federal banking regulators are rapidly rewriting the playbook. In the early months of the second Trump administration, sweeping shifts in policy and supervisory priorities are already taking shape. One of the most consequential changes? A dramatic pivot by the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) in how they assess reputational risk during bank examinations.
The OCC and FDIC will stop considering "reputational risk"—the risk posed by negative public opinion to a bank’s future financial condition—as a distinct risk category during supervisory bank examinations. On March 20, Acting Comptroller of the Currency Rodney Hood announced that the OCC will remove references to reputational risk from its manuals and guidance issuances. On March 24, acting FDIC Chairman Travis Hill followed suit in a letter to Dan Meuser, Chairman of the House Committee on Financial Services Subcommittee on Oversight and Investigations, stating that the FDIC would "eradicate [reputational risk] from our regulatory approach" and adding that reputational risk "has been abused in the past, and adds no value from a safety and soundness perspective as a standalone risk."
Still, this shift does not change financial institutions’ obligation to manage risk across all other risk areas prudently or to meet capital, asset quality, management and liquidity requirements. As Hill framed it, the change represents a move toward a more objective examination of a bank’s financial health "through traditional risk channels." Hood likewise stated that "focusing future examination activities on more transparent risk areas improves public confidence in the OCC’s supervisory process and makes clear that the OCC has not and does not make business decisions for banks."
The move away from reputational risk corresponds with growing political and industry outcry against "debanking", or banks’ closure of customer accounts based on the bank’s opinion that the customer poses a reputational risk. Cryptocurrency firms and other groups claim that they have been debanked based on their ideological or political views—claims that banks have repeatedly denied. The shift the OCC and FDIC have announced also coincides with potential legislation percolating in Congress. The Financial Integrity and Regulation Management Act, or FIRM Act, would combat debanking by prohibiting reputational risk as a component of financial regulatory supervision. Versions of the FIRM Act have been introduced in both the Senate and the House and have broad industry support.
Legislators’ and regulators’ retreat from reputational risk are likely only a portion of the financial regulatory shifts to come, particularly given the Trump administration’s stated interest in fintech and cryptocurrency and other moves made by the OCC. As banks evaluate these broad changes, they should continue to monitor traditional risk categories as they prepare for supervisory examinations by federal regulators. And although they may be able to lessen their focus on reputational risk in some circumstances while federal regulators recede from that space, they should be mindful that state regulators may step into the void with different priorities.
