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FDIC Drops ‘Reputational Risk’ in Bank Examinations
The US Federal Deposit Insurance Corporation (FDIC) has made a significant shift in its policy by removing reputational risk as a factor in bank supervision. This move comes after the Office of the Comptroller of the Currency (OCC) previously stopped examining banks based on reputational risk.
According to a March 24 letter from FDIC Acting Chairman Travis Hill to Rep. Dan Meuser, banking regulators should no longer use reputational risk to evaluate financial institutions. The letter states that while a bank’s reputation is important, most risks to reputation come through existing risk categories such as credit risk and market risk. These areas are already covered in banking regulations.
As a result of this review, the FDIC has decided to remove the term “reputational risk” from its regulatory framework, signaling a significant change in how the agency approaches risk management for financial institutions.
This decision may have a substantial impact on digital asset firms, as many have faced difficulties obtaining banking services due to perceived risks under this category. The Federal Reserve defines reputational risk as potential harm from negative publicity, which could lead to customer losses, lawsuits, or reduced revenue.
Many crypto firms have struggled to secure banking services due to these concerns. The FDIC’s decision may ease restrictions for businesses previously affected by debanking policies.
The letter addressed digital assets directly, stating that the agency has been “closed for business” for financial institutions dealing with blockchain and distributed ledger technology. The document suggests that the FDIC is now reviewing its stance on digital asset policies to provide banks with a structured way to engage with cryptocurrency and related financial products.
This change could potentially mean fewer restrictions for financial institutions working with digital assets. However, the FDIC has not outlined any specific changes to its approach toward banks handling crypto-related businesses.
The agency’s decision came in response to a February request from Meuser and other lawmakers, who urged the FDIC to clarify digital asset regulations and reduce barriers that prevent firms from accessing banking services. Lawmakers expressed concerns about debanking practices affecting certain industries, including those classified as high risk, such as the crypto industry.
This move may ease restrictions for businesses previously affected by debanking policies, but the agency has not provided details on its updated approach to digital asset regulation.
The removal of reputational risk from bank examinations could have significant implications for the crypto and blockchain sectors.
Source: https://coinchapter.com/fdic-drops-reputational-risk-in-bank-examinations/?utm_source=rss&utm_medium=rss&utm_campaign=fdic-drops-reputational-risk-in-bank-examinations
