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Senate Banking Committee reports FIRM Act after debate over reputational risk, rejects SAFER Banking language
Summary
The Banking Committee voted to report the FIRM Act (S.875) to the Senate after debating limits on regulators' use of reputational risk; several amendments to clarify exceptions and reporting failed and the managers' text was ordered reported.
The Senate Banking Committee voted to report S.875, the FIRM Act, to the full Senate after debating whether and when federal banking regulators may consider "reputational risk" in supervision decisions.
The panel approved the managers' package and then, after considering several amendments, voted to order the FIRM Act reported to the Senate. The committee clerk announced the final tally as 13 in favor and 11 opposed.
Senator Rounds, speaking in support of language included in the managers' amendment, said the Taylor Act provisions require regulators to "consider individual financial institutions' risk profiles when formulating regulations," arguing that regulators should tailor rules to bank size and risk. Rounds described the change as aimed at reducing disproportionate compliance costs for community institutions.
Opponents and some Democrats said they were concerned the bill's broad prohibitions on reputational-risk considerations could hinder regulators from flagging genuine illicit or state-sponsored activity. Senator Reid pointed to historical examples to make that point, saying that banks once continued to serve a client with a ‘‘bright red flag’’ and that oversight failures in those cases had enabled additional crimes.
The committee debated several amendments that would have preserved narrow reputational-risk exceptions for activity tied to sanctioned states or serious criminal conduct, required additional reports to Congress, or incorporated language from previously reported bipartisan measures (including text from the SAFER Banking Act). Most of those amendments were rejected in recorded votes. Senators defending the managers' text argued it was necessary to prevent regulators from using reputational risk as a pretext to "debank" lawful customers.
After the final roll call, Chairman Scott ordered the bill reported as amended and asked unanimous consent to make technical changes. The clerk recorded the committee vote and the FIRM Act was reported to the full Senate with a committee vote of 13-11 in favor.
Lawmakers on both sides indicated further negotiation will continue as the bill moves toward the Senate floor; supporters said the bill protects lawful access to banking services, while critics said they will press for additional anti-money-laundering and national-security safeguards during subsequent consideration.
