The Federal Reserve is seeking public comment on a proposal to codify its recent decision to remove the use of reputational risk from its bank supervision.
The Fed last year announced that reputational risk would no longer be a component of its bank examinations. The use of reputational risk had become a controversial component of bank supervision among lawmakers, who accused regulators of using it to pursue political agendas.
In an announcement today, the Fed said it is proposing to codify that decision with new rulemaking. The proposed rule would prohibit the Fed board from encouraging or compelling Fed-supervised institutions to deny services “to an individual or business based on their constitutionally protected political or religious beliefs, associations, speech or conduct, or based on involvement by the individual or business in politically disfavored but lawful business activities perceived to present reputation risk.”
“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,” Fed Vice Chair for Supervision Michelle Bowman said. “Discrimination by financial institutions on these bases is unlawful and does not have a role in the Federal Reserve’s supervisory framework.”
Comments on the proposed rule are due 60 days after publication in the Federal Register.
