A recent proposal by the Federal Reserve to remove reputation risk from its bank supervision will enhance objectivity and allow the central bank to focus resources on material risks to the financial condition of a firm, the American Bankers Association said today.
The Fed last year announced that reputation risk would no longer be a component of its bank examinations. In February of this year, it proposed a new rule to codify the change and add new language to prevent banks from denying services to customers based on their political and religious beliefs.
In a letter to the Fed, ABA said it supported the rule. The association also said it was satisfied the proposal contained language stating that the debanking prohibition “is not intended to impact the ability of banking organizations to manage their businesses and make independent decisions regarding their customers.”
Although the Fed has already revised its examination and supervisory policy documents to remove reputation risk, “ABA agrees that the [Fed] board should also adopt the proposal as a final regulation to increase the transparency and consistency of the supervisory process,” the association said.
