The Office of the Comptroller of the Currency (OCC) announced that it will no longer evaluate banks based on reputational risk. This new directive focuses on the risk management processes stemming from banks' activities.
OCC and Bank Assessments
With the guideline announced on March 7, the OCC stated that banks could use their own risk mitigation tools. This regulation seeks to replace subjective assessments in bank reviews with more objective criteria, specifically assessing banks' operations based on their risk management practices. Congress has initiated efforts to investigate potential discriminatory banking practices, highlighted in Senate Banking Committee and Financial Services Subcommittee hearings. Nathan McCauley, CEO of Anchorage Digital, pointed out that even well-managed firms are disadvantaged by banks.
Banks and Crypto
The OCC indicated that the evaluation process of banks’ internal risk models will become more transparent and objective, affirming that past assessments based on reputational risk will no longer be used. These steps are seen as part of efforts to maintain stability in the banking system. Following FTX’s bankruptcy in November 2022, regulatory bodies highlighted increased risks in the crypto sector.
New Direction and Consequences
The OCC’s new initiative is viewed as a significant step towards adopting objective criteria in bank evaluations. The regulation aims to enhance banks’ risk management strategies and increase transparency. Many crypto companies struggled to find banks willing to work with them following the FTX collapse.
The OCC's new initiative signifies a major shift towards more objective methods in bank evaluations, aimed at eliminating subjective reputational risks.
