On March 20, the Office of the Comptroller of the Currency (OCC) announced that it will no longer examine its regulated institutions for reputation risk. According to the OCC’s “Categories of Risk,” reputation risk is the risk to earnings or capital arising from negative public opinion, which can affect an institution’s ability to establish new relationships or services or to continue servicing existing relationships. The decision to stop examining banks for reputation risk comes in the wake of the introduction of the Financial Integrity and Regulation Management (FIRM) Act, which aimed to eliminate reputational risk as a component of the supervision of depository institutions.
OCC’s Announcement
In its press release, the OCC stated that it is removing references to reputation risk from its Comptroller’s Handbook booklets and guidance issuances. Acting Comptroller of the Currency Rodney E. Hood stated: “The OCC’s examination process has always been rooted in ensuring appropriate risk management processes for bank activities, not casting judgment on how a particular activity may fare with public opinion. The OCC has never used reputation risk as a catch-all justification for supervisory action. 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 OCC emphasized, however, that the removal of references to reputation risk does not alter the OCC’s expectation that banks remain diligent and adhere to prudent risk management practices across all other risk areas. The OCC expects to complete its efforts to update its public documents in the coming weeks.
The FIRM Act
The OCC’s decision follows the introduction of the FIRM Act (S.875) by Senator Tim Scott (R-SC) on March 6, 2025. The bill, co-sponsored by several other senators, is intended to curtail the political weaponization of federal banking agencies by eliminating reputational risk as a component of the supervision of depository institutions.
Conclusion
Monitoring reputation risk was intended to reduce potential causes of bank runs, but critics have argued that the concept is too subjective and could be used as a pretext for debanking customers for political or social reasons. As a result, some members of the banking industry applauded the OCC’s announcement.
