The Federal Reserve Board requested public comment on a proposal to codify its earlier removal of “reputation risk” from bank supervision, the Board said in a press release.
The proposal reiterates the Board’s policy against penalizing or prohibiting a bank from serving customers engaged in legal activity. Vice Chair for Supervision Michelle W. Bowman said the Fed has heard troubling cases of debanking where supervisors used reputation-risk concerns to pressure institutions to drop customers because of political views, religious beliefs, or involvement in disfavored but lawful businesses, adding that discrimination on those bases is unlawful and has no role in the Fed’s supervisory framework. The Board said it had announced in June that reputation risk would no longer be part of its examination programs, and said the proposal is meant to keep supervision anchored to material financial risks and improve clarity and precision.
The Fed said the change does not alter expectations that banks maintain strong risk management for safety and soundness and legal compliance. Comments are due within 60 days after publication in the Federal Register, making the filing-and-feedback window the next key milestone for industry stakeholders.
Source: Federal Reserve Board.
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