The Federal Reserve today announced that reputational risk will no longer be a component of its bank examinations. In a statement, the Fed said it has started the process of removing references to reputation and reputational risk from its supervisory materials, “and, where appropriate, replacing those references with more specific discussions of financial risk.”
Reputational risk has become a controversial component of bank supervision among lawmakers, who accuse regulators of using it to pursue political agendas. Bills have been introduced in the House and Senate to remove reputational risk from bank supervision.
The Office of the Comptroller of the Currency in March announced it was removing reputational risk from its examinations and guidance, and the FDIC is reportedly drafting rulemaking to do the same.
The Fed said its decision on reputational risk does not alter its expectation that banks maintain strong risk management. The decision also is not intended to affect whether banks use reputational risk in their risk management practices, it added.
In a statement, the American Bankers Association President and CEO Rob Nichols welcomed the Fed’s decision.
“We have long believed banks should be able to make business decisions based on prudent risk management and the free market, not the individual perspectives of regulators,” Nichols said. “This change will make the supervisory process more transparent and consistent while enabling banks to better meet the needs of their customers, clients and communities.”
