The FDIC plans to change its approach to reputational risk amidst criticism from the crypto industry.
Situational Context
The U.S. Federal Deposit Insurance Corporation (FDIC) faces criticism from the cryptocurrency sector regarding the use of reputational risk in bank supervision. Critics argue it limits crypto firms' access to basic financial services.
FDIC's Position and New Initiatives
Acting FDIC Chairman Travis Hill confirmed in a letter to Rep. Dan Meuser that the agency is actively working on a new direction in digital assets policy. Hill, who supports a more open regulatory stance on crypto, stated that banking regulators should not use reputational risk for supervisory criticism.
The Concept of Reputational Risk and Its Review
Reputational risk refers to the potential damage to a bank's reputation from associations with particular clients or sectors. Hill emphasized the importance of a bank's reputation, but pointed out that most activities affecting it manifest through traditional risk channels. The FDIC has reviewed its documents and is preparing to publish new rules.
The FDIC's steps to change its policy on reputational risk could open new opportunities for the crypto industry.
