The Federal Reserve Board on June 23 removed reputational risk from its bank supervision program, ordering staff to strike the term from examination manuals and to concentrate on measurable financial exposures.
The Fed move positions the central bank alongside the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency, which made similar changes this year.
Together, the three regulators oversee every federally insured depository institution. Their coordinated revisions eliminate a subjective standard that experts said allowed examiners to block banking services to crypto firms.
Additionally, it prevented banks from offering crypto-related services as simple as buying and selling Bitcoin (BTC).
Under the new guidance, Fed examiners will receive training to implement the change uniformly across all Board-supervised banks and will work with peer agencies “to promote consistent practices.”
The memo emphasizes that banks must continue to maintain robust risk management frameworks to safeguard their safety and soundness. Still, it clarifies that exam teams should address reputational effects only through specific legal, liquidity, or credit channels.
Fed signals openness to regulated crypto activity
Chair Jerome Powell laid the groundwork for the shift in an April 16 speech at the Economic Club of Chicago, where he urged Congress to establish a stablecoin framework and stated that the Fed does not intend to limit lawful relationships between banks and crypto firms.
Back then, the GENIUS Act was stuck in Congress. Yet, this scenario changed after the Senate sent the measure to the House for consideration following a 51-23 vote on June 17.
Furthermore, Powell acknowledged that regulators adopted a conservative stance after the 2022 market failures but said some guidance “may be relaxed to accommodate responsible innovation.”
He pointed to crypto custody services already operating inside Fed-supervised banks and pledged to preserve safety while allowing institutions to “engage with digital assets in a way we understand.”
Powell’s remarks echo testimony he gave to Congress in February, where he confirmed that existing supervisory frameworks permit banks to handle crypto so long as they manage capital, liquidity, and operational risks.
The Federal Reserve’s directive completes a three-month effort by federal regulators to remove reputational risk from bank supervision policy, leaving operational, legal, and financial criteria as the sole grounds for examiner action.