The Federal Reserve (Fed) of the United States has announced a significant change in its bank inspection policy regarding reputational risks.
Changes in Fed Policy
The Fed stated that it will no longer assess banks for ‘reputational risks’. This means that during regular inspections, regulators will only evaluate risks that directly impact money, operations, and legal compliance. ‘The Board has begun the process of reviewing and removing references to reputation and reputational risk,’ said an official statement from the Fed.
Impact on Banks and Crypto Firms
This easing of Fed regulations may have a positive effect on crypto firms, as banks may feel more confident in partnering with legal crypto companies. Previously, some U.S. banks were hesitant towards cryptocurrencies due to potential negative public perception. Earlier in 2023, two crypto-friendly banks, Silvergate and Signature, collapsed as they struggled to find new banking partners.
Conclusion and Next Steps
The Fed also noted that the new rule does not absolve banks from the need to adhere to strict risk management requirements. Now, banks will decide how much their public image matters in day-to-day operations. The Fed emphasized that this change ‘is not intended to impact whether and how Board-supervised banks use the concept of reputational risk in their own risk management practices’.
The Fed's policy changes regarding the cessation of reputational risk assessment could lead to more active collaboration between banks and the crypto industry, allowing banks to focus on financial and operational risks.
