House Financial Services Committee Chairman Jeb Hensarling is challenging the idea that regulators should restrict banks' activities based on a judgment about the potential harm to their reputations.

In letters to federal regulators Thursday, the Texas Republican writes that reputational risk is a "vague, subjective and unquantifiable" indicator. He adds that it would be "an abuse of regulatory discretion" to use reputational risk to justify and outcome that could not otherwise be justified using objective criteria such as capital adequacy and liquidity.

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