Bank regulators remove more reputational risk references

• Key takeaway: The Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. said Tuesday they had removed references to reputational risk from certain interagency guidance documents, the latest step in a broader effort to eliminate the concept from bank supervision. 
• Expert quote: "Reputation risk can be misused by supervisors as a basis to encourage or pressure a bank to restrict individuals' and legal businesses' access to financial services due to their constitutionally protected political or religious beliefs, speech or conduct, or lawful business activities," the agencies said.
• What's at stake: The changes are part of a broader effort by prudential regulators to implement President Donald Trump's August executive order on "debanking." The order directs regulators to review financial institutions for policies that encourage the termination of customer relationships based on religious or political affiliations.

WASHINGTON — Federal banking regulators on Tuesday announced that they had removed references to reputational risk from certain interagency guidance documents, extending a broader effort to eliminate reputational risk from bank supervision.

In a joint statement, the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. said the move follows earlier actions to end the use of reputational risk as a component of supervisory oversight.

"Reputation risk can be misused by supervisors as a basis to encourage or pressure a bank to restrict individuals' and legal businesses' access to financial services due to their constitutionally protected political or religious beliefs, speech or conduct, or lawful business activities," the agencies said.

The regulators said the changes are intended to ensure supervisory decisions are based solely on material financial and operational risks and to increase transparency in the supervisory process. The agencies did not specify which interagency guidance documents were revised.

The announcement follows a rule finalized in April by the OCC and FDIC barring examiners from issuing "matters requiring attention" or "matters requiring immediate attention" to a bank's board of directors based solely on concerns that banking relationships with certain organizations or industries could damage a bank's public image — a category known as reputational risk.

A proposal issued in October 2025 would have prohibited examiners from raising concerns about anything other than a bank's financial condition. The final rule narrowed that restriction, allowing examiners to criticize activities that present financial or operational risks while continuing to prohibit assessments based solely on public perception.

The changes are part of a broader effort by banking regulators to implement President Donald Trump's August executive order on "debanking," which directs regulators to review financial institutions for policies that encourage the termination of customer relationships based on religious or political affiliations.

Separately, the Federal Reserve has also begun making internal changes to its supervisory approach. In a memo published in October, Fed supervisory staff were instructed to focus on promoting safety and soundness in the banking system.

The memo called for reducing attention to "processes, procedures and documentation that do not pose a material risk," saying such practices can distract from the agency's core mission of ensuring the safety and soundness of the banking system. It also directed examiners to scale back proactive oversight of bank subsidiaries and rely more heavily on previous examination findings.

It remains too early to assess how the changes will affect bank supervision over the long term. In a previous interview, Tony Salazar, Maryland's commissioner of financial regulation, said there can be concern that federal supervisors may scrutinize some issues less closely, increasing the risk that significant problems overlooked by state regulators could also go undetected at the federal level.Federal Reserve Gov. Michael Barr, the former vice chair for supervision, has repeatedly warned about the risks that regulatory rollbacks pose to the financial system.

In a November speech, Barr said it took nearly a decade after the 2008 financial crisis for regulators to develop the expertise needed to understand the banking system's complexity, warning that that capacity and expertise "is being gutted."