The U.S. Federal Deposit Insurance Corporation (FDIC) is taking steps to eliminate the use of reputational risk as a supervisory tool for banks following backlash from the cryptocurrency industry.
Critics argue that reputational risk is being used to deny crypto firms access to basic financial services.
Acting FDIC Chairman Travis Hill, who was appointed in January, confirmed in a letter to Rep. Dan Meuser that the agency is “actively working on a new direction in digital assets policy.” Hill, who has advocated for a more open regulatory stance on crypto, said banking regulators should not rely on reputational risk for supervisory criticism.
Reputational risk refers to the possibility that a bank's reputation will be damaged by its association with particular customers, sectors or activities.
“While a bank’s reputation is critically important, most activities that could threaten a bank’s reputation do so through traditional risk channels (e.g., credit risk, market risk, etc.),” Hill said in the letter.
As part of the policy change, the FDIC reviewed its documents, including policy statements, examination guides, and rules. Hill added:
“We are actively working on a rulemaker, which we expect to be published in the near future, to ensure that supervisors do not criticize activities or actions on the basis of reputational risk.”
*This is not investment advice.
