The Federal Reserve has announced that it will no longer consider reputational risk in its banking supervision. This decision responds to ongoing concerns within the industry about the subjectivity of this measure.
Federal Reserve Announcement
On Monday, the Federal Reserve confirmed that it has begun to remove references to reputational risk from its supervisory materials, including examination manuals. The central bank stated that it will now direct examiners to focus on specific financial risks.
Training and Coordination with Other Agencies
To ensure consistency, the Federal Reserve will train examiners on the updated policy. The goal is to align examination standards across all Board-supervised banks. The central bank also mentioned plans to work with other banking regulators to maintain uniform supervision practices.
Risk Management Expectations
The Federal Reserve clarified that this change does not lower expectations for banks to maintain effective risk management systems. "This change does not alter the Board’s expectation that banks maintain strong risk management to ensure safety and soundness," the statement noted.
The Federal Reserve's removal of reputational risk from its supervision criteria may enhance access to banking services for legitimate cryptocurrency firms and other businesses.
