FDIC Drops ‘Reputational Risk’ Rule—Banks Breathe a Sigh of Relief

The Federal Deposit Insurance Corporation (FDIC) will no longer use “reputational risk” to supervise banks. The decision follows concerns that the rule was being used to limit banking access for certain industries, including digital assets.

Acting FDIC Chairman Travis Hill confirmed the change in a March 24 letter to Rep. Dan Meuser. He stated that reputational concerns should not be a factor in regulatory actions. Most risks to a bank’s reputation, he explained, stem from financial issues such as credit or market risk, which regulators already monitor.

The FDIC reviewed all mentions of reputational risk in its policies and is now working on a formal rule change to remove it. The new regulation is expected soon.

Crypto Industry and Lawmakers Welcome the Decision

For years, crypto companies have struggled to access banking services. Many argued that reputational risk rules were used to cut them off from the financial system. The issue gained attention after the collapse of several crypto-friendly banks in 2023. Some called the crackdown “Operation Choke Point 2.0,” comparing it to a 2013 effort to limit banking for certain industries.

Republican lawmakers pushed regulators to change course. In February, Meuser and other lawmakers urged the FDIC to revise its approach to digital asset firms. Hill’s letter was a response to that request.

White House Crypto and A.I. Czar David Sacks called the FDIC’s move a “win for crypto.” He argued that reputational risk rules had been used unfairly. 

Matthew Sigel, head of digital assets research at VanEck, shared a similar view. He said the change removes an excuse for banks to deny services based on political pressure.

Big win against Chokepoint 2.0.

FDIC backing off "reputational risk" means fewer excuses to debank industries they don’t like.

Credit should flow based on balance sheets, not political agendas. https://t.co/UD4WKICd5B

— matthew sigel, recovering CFA (@matthew_sigel) March 25, 2025

OCC Follows Suit in Dropping Reputational Risk

The FDIC is not alone in making this change. The Office of the Comptroller of the Currency (OCC) also confirmed that it will stop evaluating banks based on reputational risk. The agency said banks still need to manage risks properly but will not be judged on reputation alone.

Congress is also taking action. The Senate Banking Committee, led by Republicans, recently passed the FIRM Act. This bill would ban all federal banking regulators from using reputational risk as a factor in oversight. However, no Democratic senators supported the measure, and its future remains uncertain.

📰 NEWS: The @FDICgov is going to eliminate the use of reputational risk as a component of bank supervision.
 
This follows the Committee’s passage of @SenatorTimScott’s FIRM Act, which would codify the elimination of reputational risk across all federal banking regulators.

— U.S. Senate Banking Committee GOP (@BankingGOP) March 25, 2025

New Direction for Digital Asset Banking

With the FDIC’s decision, banks may feel more comfortable working with digital asset firms. Many believe this will create a more stable environment for businesses seeking financial services.

Hill confirmed that the FDIC is now developing a new policy for digital assets. This suggests a shift in how regulators handle crypto-related banking.

The decision reflects a broader move toward objective financial risk assessments. Instead of relying on reputation-based concerns, regulators are focusing on measurable financial risks. Many in the banking and crypto industries see this as a positive step.