Federal Reserve Board – Following earlier actions to remove reputation risk from its supervision of banks, Federal Reserve Board requests comment on proposal to codify that removal

Following earlier actions to remove reputation risk from its supervision of banks, the Federal Reserve Board on Monday requested comment on a proposal to codify that removal. The proposal reiterates the Board’s policy against penalizing or prohibiting an institution from banking a customer engaged in legal activity.

“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 disfavored but lawful businesses,” said Vice Chair for Supervision Michelle W. Bowman. “Discrimination by financial institutions on these bases is unlawful and does not have a role in the Federal Reserve’s supervisory framework.”

In June, the Board announced that reputation risk would no longer be a component of examination programs in its supervision of banks. This proposal would build on that announcement to help ensure supervisory decisions are based on material financial risks, as well as increase clarity and facilitate greater precision in supervisory decision making. It would also support the Board’s focus on core financial risk in its supervision of banks.