The US Federal Reserve has introduced a draft rule that would change how bank examiners evaluate risk, proposing an end to the use of reputation risk in supervisory decisions.
The proposal, now open for public comment, would prevent examiners from discouraging banks from serving customers involved in lawful activities.
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Instead, supervisory focus would shift to risks posing a direct threat to a bank’s stability and soundness.
This initiative follows actions taken by President Donald Trump to address what he identified as unfair treatment by major banks.
Trump filed a $5bn lawsuit against JPMorgan and its CEO Jamie Dimon, alleging political motivation behind the closures of his accounts.
The bank recently disclosed in court filings that it closed accounts linked to Trump and his related businesses after the events at the US Capitol on 6 January 2021.
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By GlobalDataIn June, the Federal Reserve signalled its intent to remove reputation risk from its bank examination frameworks.
The new measure seeks to formalise this approach by removing references to reputation risk from all relevant supervisory guidance and manuals.
According to the Board, the proposed changes are expected to simplify oversight for banks under its supervision, providing clearer and more objective standards.
Supervisory processes would concentrate on measurable risks such as credit, market, liquidity, and operational concerns.
Eliminating reputation risk could also create broader access for customers and offer regulators greater efficiency in how they manage resources.
This move is consistent with steps taken by other US watchdogs including the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, which have also worked to exclude reputation risk from their regulatory regimes.
Public feedback on the Federal Reserve’s proposal will be considered before any rule is finalised.
In a statement, Fed vice chair for supervision Michelle W. Bowman said: “We have heard troubling cases of debanking – where supervisors use concerns about reputation risk to pressure financial institutions to debank customers because of their political views, religious beliefs, or involvement in disfavoured but lawful businesses.
“Discrimination by financial institutions on these bases is unlawful and does not have a role in the Federal Reserve’s supervisory framework.”
