Federal Reserve Drops Reputational Risk from Bank Supervision Framework

According to an article from Ballard Spahr, the Federal Reserve Board has announced it will eliminate reputational risk as a component of its bank examination programs, aligning with similar actions by the Office of the Comptroller of the Currency (OCC) and anticipated changes from the Federal Deposit Insurance Corporation (FDIC). 

The Fed stated it is revising its supervisory materials and examination manuals to remove references to reputational risk and will retrain examiners to ensure consistent application of the new policy across all supervised institutions.

While the Fed emphasized that this move does not reduce its expectations around safety, soundness, or legal compliance, it clarified that reputational risk will no longer be a standalone factor in regulatory assessments. Instead, any relevant concerns will be addressed through more targeted evaluations of financial or legal risk. 

This shift comes amid broader debates about regulatory overreach and politicization, particularly following scrutiny of bank relationships with industries such as firearms, payday lending, fossil fuels, and cryptocurrency.

Supporters, including Senator Tim Scott and the American Bankers Association, argue that the change will reduce subjective regulatory influence and foster more transparent, market-driven decision-making. Critics, however, including consumer advocacy group Public Citizen, contend that reputation remains inherently linked to a bank’s financial stability and warn that the Fed’s decision may weaken risk oversight under the guise of political neutrality.

While reputational risk is no longer a formal supervisory category, its real-world implications remain material. Banks must continue to manage reputational exposure proactively within their internal frameworks, even as regulatory expectations shift toward a narrower focus on concrete financial risks.