Fed Moves to Permanently Drop ‘Reputational Risk’ From Bank Supervision
Decrypt
by Vismaya VFebruary 24, 2026
AI-Generated Deep Dive Summary
The Federal Reserve has launched a 60-day comment period to permanently remove "reputational risk" from its bank supervision rules, marking a significant shift in regulatory oversight. This move aims to eliminate a vague and subjective standard that critics argue introduced unnecessary variability into supervisory approaches. Instead, the Fed will focus on measurable financial risks such as credit, liquidity, and market risks, which directly impact the safety and soundness of financial institutions. The decision has been welcomed by crypto advocates and lawmakers who view it as a step toward formalizing clearer rules for digital asset banking.
Senator Cynthia Lummis (R-WY) praised the Fed's proposal, calling it long overdue. She argued that the Fed should not act as both judge and jury in supervising digital asset companies, emphasizing that this change helps put an end to "Operation Choke Point 2.0," a regulatory tactic used to pressure banks into avoiding crypto-related businesses. However, experts like Sudhakar Lakshmanaraja of Digital South Trust caution that reputational risk was just one factor among many—such as AML compliance and economic challenges—that discouraged banks from engaging with crypto firms.
Lakshmanaraja stressed the need for Congress to establish clear, durable legislation, such as the CLARITY Act and the GENIUS Act, to ensure lawful businesses have predictable banking access. He warned against relying on discretionary supervisory signals, which can create uncertainty for banks and crypto firms alike. The Fed's announcement comes amid ongoing legal battles, including a lawsuit by former President Donald Trump over JP Morgan Chase's decision to close his accounts following the 2021 Capitol attack. Trump claims the closures were politically motivated, with banks acting under regulatory pressure tied to reputational risk.
Additionally, the FDIC recently settled a FOIA lawsuit brought by Coinbase, agreeing to revise its training materials and stop withholding bank supervisory documents related to crypto activity. This settlement highlights the broader effort to bring transparency and accountability to bank supervision practices. While the Fed
Verticals
cryptoweb3
Originally published on Decrypt on 2/24/2026