Fed Ends "Reputation Risk" Scrutiny, Boosting Crypto Access

- Fed to cease "reputational risk" scrutiny in bank oversight. - Crypto and banking sectors herald change as key victory. On June 24, 2025, Cointelegraph reported that the US Federal Reserve instructed its supervisors to cease considering "reputational risk" when overseeing banks. The cryptocurrency industry views this policy shift as significant, claiming banks have unfairly used "reputational risk" to deny banking services to crypto firms. The Federal Reserve Board announced on June 23, 2025, that it is working to remove references to reputational risk from its supervisory materials, which will be replaced by more specific discussions focusing on financial risk. Additionally, the Board intends to train examiners and collaborate with other federal bank regulatory agencies to ensure consistent application of this change. The Federal Reserve emphasized that its goal is to make the supervisory process more transparent and consistent. However, it also stressed that banks must still maintain robust risk management practices and comply with all laws and regulations. Furthermore, the Fed clarified that this modification is not intended to influence whether or how banks use the concept of reputational risk in their internal risk management. The cryptocurrency and banking sectors have largely welcomed this decision. On June 24, US Senator Cynthia Lummis stated that the previous reputational risk policies "assassinated American Bitcoin & digital asset businesses." She also called the Federal Reserve's move "a win," though she acknowledged more work remains. Echoing this sentiment on June 24, Rob Nichols, president and CEO of the American Bankers Association, praised the decision. He stated that it will enhance transparency and consistency in supervision and added that this change will allow banks to make business decisions based on prudent risk management and the free market. Critics, however, express concern, believing that eliminating reputational risk from supervisory consideration could obscure non-financial issues, potentially impacting bank stability, weakening oversight, and possibly encouraging riskier banking practices. The Federal Reserve's move aligns with actions from other U.S. regulators, who have also begun easing crypto-related restrictions this year. For instance, in May 2025, the Office of the Comptroller of the Currency (OCC) confirmed that banks under its jurisdiction can handle customer crypto assets held in custody and outsource some crypto activities. Similarly, the Federal Deposit Insurance Corporation (FDIC) indicated in a March 2025 letter that institutions it oversees can now engage in crypto-related activities without prior approval. According to CoinMarketCap, as of June 24 at 12:00 UTC, Bitcoin (BTC) is trading at $34,218, and its 24-hour trading volume has increased by 2.1%.