The FDIC Eliminates Reputational Risk in Bank Supervision
The Senate Banking Committee made a groundbreaking announcement on March 25 regarding the Federal Deposit Insurance Corporation (FDIC) eliminating reputational risk as a component of bank supervision.
Significant Correction in Banking Criteria
White House “Crypto Czar” David Sacks praised the FDIC’s decision, calling it a significant correction and a major victory for the crypto industry. Sacks emphasized the importance of objective and quantitative banking criteria rather than relying on vague and subjective standards that could lead to the debanking of lawful crypto businesses.
“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, a regulatory effort under the previous administration, aimed to prevent banks from engaging with the crypto industry by denying banking services to crypto-related businesses.
Legislative Efforts and the FIRM Act
Sacks acknowledged Senator Tim Scott for leading the legislative effort through the FIRM Act, which seeks to codify the removal of reputational risk standards across all federal financial regulators. The Act ensures that institutions cannot be denied access to financial services based on subjective perceptions of risk unrelated to any violation of law or regulation.
Senator Scott criticized the weaponization of rules and the misuse of reputational risk to debunk industries in early March.
Following the OCC
The decision by the Office of the Comptroller of the Currency (OCC) to cease examining regulated institutions for reputational risk and remove references to the term from its supervisory handbook and guidance set the stage for the FDIC’s move. The OCC clarified that examinations should focus on operational, legal, and financial risk factors rather than public perception.
Victory for the Crypto Industry
Representative French Hill, vice chair of the House Financial Services Committee, echoed Sacks’ sentiments, describing the FDIC’s decision as a positive development for the US crypto industry. He emphasized the importance of focusing on the core mission rather than targeting crypto firms.
“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.”
Industry experts, including Matthew Sigel from VanEck, Nic Carter from Castle Island Ventures, and James Kibbie from Galaxy Digital, celebrated the FDIC’s decision as a significant step towards eliminating vague and subjective policies that hinder American innovation.
