The Senate Banking Committee announced on March 25 that the Federal Deposit Insurance Corporation (FDIC) will eliminate reputational risk as a component of bank supervision.
White House “Crypto Czar” David Sacks said the FDIC’s decision was a significant correction, and called it “a big win for crypto.
He added:
“In practice, this vague and subjective criteria was used to justify the debanking of lawful crypto businesses through Operation Chokepoint 2.0. Banking criteria should be objective and quantitative, not based on the potential for untrue stories.”
Operation Chokepoint 2.0 was an allegedly concerted effort by regulators under former President Joe Biden’s administration to prevent banks from engaging with the crypto industry. This included the denial of banking services for crypto-related businesses.
Sacks also credited Senator Tim Scott for leading the legislative effort through the FIRM Act, which aims to codify the removal of reputational risk standards across all federal financial regulators.
The Act mandates that institutions cannot be denied access to financial services based on the subjective perception of risk unconnected to a violation of law or regulation.
In early March, Scott criticized the use of reputational risk to debunk industries, calling it a “weaponization of rules.”
Following the OCC
The move comes five days after the Office of the Comptroller of the Currency (OCC) declared it would cease examining regulated institutions for reputational risk and remove references to the term from its supervisory handbook and guidance.
According to the OCC, regulators never used reputational risk as a blanket justification for supervisory action. Still, its removal is intended to clarify that examinations should focus strictly on operational, legal, and financial risk factors.
In a March 20 announcement, acting Comptroller Rodney E. Hood emphasized that the OCC’s oversight should be rooted in banks’ risk management processes, not public perception of particular business activities.
Win for crypto
Representative French Hill, vice chair of the House Financial Services Committee, echoed Sacks’ sentiment, calling the move a positive development for the industry in the US.
He added:
“Under the Biden Administration, the FDIC was wasting resources targeting crypto firms instead of focusing on their core mission. Now, Acting Chair Travis Hill and the Trump Admin are working to right the ship.”
Matthew Sigel, head of digital assets research at VanEck, celebrated the FDIC’s decision as a “big win against Chokepoint 2.0.” He added that removing reputational risk means “fewer excuses to debank industries they don’t like.”
Nic Carter, partner at Castle Island Ventures and co-founder of blockchain data aggregator Coinmetrics.io, said reputational risk is “a circular mechanic that allows bank regulators to cut off any industry they dislike.”
Galaxy Digital’s James Kibbie said it is very encouraging to see President Donald Trump’s administration taking steps to eliminate vague and subjective policies and stop Operation Chokepoint 2.0. He added that the usage of reputational risk has significantly hindered “American innovation.”
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