Board of Governors of the Federal Reserve System

Today's proposal represents an important step in addressing a critical issue: ending the use of "reputation risk" as grounds for supervisory criticism of banks. This vague and inherently subjective standard has introduced unnecessary variability into supervisory approaches and diverted focus from core, measurable financial risks such as credit, liquidity, and market risk that most directly affect the safety and soundness of financial institutions.

We have heard of troubling cases of debanking—where supervisors use concerns about reputation risk to pressure financial institutions to debank customers because of their political views, religious beliefs, or involvement in disfavored but lawful businesses. Discrimination by financial institutions on these bases is unlawful and does not have a role in the Federal Reserve's supervisory framework.

Bank examination must prioritize risks that threaten bank safety and soundness, and U.S. financial stability. Reputation risk has not been an effective tool to accomplish this goal. It has often served as an imprecise, catch-all category rather than as a means to identify concerns that impact the safety and soundness of an institution.

In June of 2025, the Board announced that reputation risk would no longer be a component of the examination programs for the supervision of banks.¹ Today's proposal would memorialize the changes made to the Federal Reserve's supervisory approach to refocus on core financial risks and eliminate the misuse of reputation risk.

Supervisory feedback and dialogue with bank management can be an effective tool to help banks proactively manage existing and emerging risks. However, the channel is effective only when the feedback is clear, specific, and actionable. Discussions of "reputation risk" frequently lack sufficient clarity and a clear remediation path.

"Reputation risk" has been raised during informal conversations between examiners and bankers. Such casual references can stifle innovation, as bankers generally want to be responsive to concerns raised by examiners, even when raised informally. Such informal communications may not appear in supervisory findings or matters requiring attention but can have significant consequences. Some banks may choose not to provide banking services to new customers, or de-bank existing ones, as a result of this type of informal communication.

Today's proposal would return bank supervision to its core goals—promoting the safe and sound operation of banks and U.S. financial stability—and leave the business of running a bank to bank management. Regulators should not direct the allocation of credit, and when supervisory tools are used to do so, the credibility and effectiveness of supervision is eroded.

I look forward to receiving public comment on this proposal.

1. Board of Governors of the Federal Reserve System, "Federal Reserve Board Announces That Reputational Risk Will No Longer Be a Component of Examination Programs in its Supervision of Banks," press release, June 23, 2025. The Board is also finalizing the removal of references to reputation risk in a variety of supervisory guidance and examination materials. Return to text