Fed removes "reputational risk" from bank exams, signals easing on crypto supervision
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Summary
The Federal Reserve told House lawmakers it has removed ‘‘reputational risk’’ from bank examinations and has scaled back supervisory statements that deterred regulated banks from engaging with crypto firms.
The Federal Reserve announced to the committee that it no longer will consider “reputational risk” as a component in bank examinations, and that the central bank has ended elements of its “novel activities” supervision program that previously created caution among banks considering work with digital asset firms.
Representative Scott Stile and other members described reputational risk as an opaque supervisory lever that had been used to push banks away from clients and sectors deemed politically sensitive. Chair Powell said he was not aware of a single new fact that prompted the change, but added the Fed and other agencies had come to view reputational risk as problematic over the course of 2024 and had moved to remove it from exams.
“We just think it's the right thing to do,” Powell told the panel. He said Vice Chair for Supervision Mickey Bowman led the announcement and implementation. Powell said banks remain free to choose their customers and to engage in crypto activities so long as they do so in a manner that preserves safety and soundness.
Powell also told the committee that he has observed a marked change in tone in the financial sector since the Fed and other agencies clarified supervisory expectations for crypto‑related activities. He said he expects “more activity” over time as industry and banks adapt to clearer guidance and as Congress advances legislation to regulate stablecoins and other digital payments.
Committee members asked how the Fed will ensure frontline examiners follow the new direction. Powell said Vice Chair Bowman — a former regulator with supervisory experience — is well positioned to work with examiners and the Fed will monitor implementation.
The Fed also said it will continue to require that banks engage in crypto or digital asset activities only in ways that are protective of safety and soundness; regulators emphasized that bank discretion over customer relationships remains central.
