The Federal Reserve just narrowed its focus. On June 23, it announced that reputational risk will no longer be part of its bank supervision framework. That means examiners will stop evaluating how well a bank manages its public image. No more scrutiny over scandals, social backlash, or media blowups. The lens now centers on financial risk alone.
This is not a tweak. It is a structural shift. The Fed has already begun removing all references to reputational risk from its manuals and training materials. Going forward, bank exams will focus on four pillars:
• Credit risk • Liquidity • Capital adequacy • Operational and compliance controls
That is the new framework. If a bank mishandles a PR crisis or gets dragged through headlines, it will not affect its Fed exam score. That used to be a factor. It is not anymore.
The move is bullish for banks. Less regulatory friction. Lower compliance costs. More room to maneuver. Without the reputational lens, banks can take bolder steps in lending, partnerships, and political activity without worrying about exam blowback. Wall Street likes that. It echoes the 2017 to 2019 deregulatory tone that helped financials outperform.
But there is a tradeoff. Public trust still matters. If a bank gets caught in a scandal involving fraud, discrimination, or money laundering, the Fed might not penalize them, but the market will. Stock prices still react. Depositors still move. And regulators like the FDIC and OCC may still factor in reputational risk. This is not a full free pass. It is a shift in tone.
The crypto sector is watching closely. Under the old framework, banks often avoided digital asset firms due to reputational concerns. That barrier just got lower. According to Blockonomi, this change could open the door to more services for crypto, cannabis, and other high-risk but legal sectors. The Fed says banks must still maintain strong internal controls. But the emphasis is now on measurable financial risk, not public perception. This signals that the Fed is leaning harder into technical oversight and stepping back from moral policing.
Sources:
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20250623a.htm
https://blockonomi.com/federal-reserve-drops-reputational-risk-rule-easing-path-for-crypto-banks/
https://coingape.com/federal-reserve-ends-reputational-risk-factor-which-penalized-crypto-banking/