The US Federal Reserve has announced significant changes in its practice of assessing banks by eliminating the term 'reputation risk'. This measure may change the game for crypto startups.
Elimination of Reputation Risk
The US Federal Reserve will no longer use 'reputation risk' to assess banks. This term was used to pressure banks to deny crypto startups banking services. Now, banks have gained autonomy in making their risk assessments. The Fed stated that they are reviewing their documentation to replace 'reputation risk' with more specific examples of 'financial risk'.
New Risk Assessment Approaches
The Fed defined reputation risk as including aspects of negative publicity that could harm a business's bottom line. Now, the central bank has removed this term from its documents and training materials, focusing instead on more specific risks. The Office of the Comptroller and the Federal Deposit Insurance Corporation have also dropped 'reputation risk' from their assessment items.
Impact on the Crypto Industry
Given that 'reputation risk' was used to pressure the crypto industry, this new change will provide more opportunities for crypto startups. Now, banks can focus on data and statistics when making decisions about crypto partnerships. This could lead to increased lending and more measured business practices for crypto companies, who will now be able to access traditional banking services.
The Federal Reserve's changes to risk assessment practices open up new prospects for both traditional banks and the cryptocurrency sector, facilitating more objective analysis and innovation.
