Americans for Free Markets Applauds Federal Reserve Board’s Announcement to Remove Reputation Risk from Supervision of Banks

“The Federal Reserve Board’s announcement provides much needed clarity and transparency to the banking supervisory process and follows similar announcements from other regulatory agencies.”

This week, the Federal Reserve Board announced it will no longer consider reputation risk in its supervision of banks. The Board has begun to remove all references to reputation risk from its supervisory materials, replacing them with more specific definitions of financial risk, and is training its regulators to follow and implement this latest guidance.

Following the announcement, Americans for Free Markets (AFFM) Executive Director John Wittman issued the following statement of support:

“The Federal Reserve Board’s announcement provides much needed clarity and transparency to the banking supervisory process and follows similar announcements from other regulatory agencies. For years federal banking regulators have wielded vague reputation risk criteria over banks to direct the flow of capital to politically favored or disfavored industries. The Fed’s new guidance, paired with similar announcements from other financial regulatory agencies, refocuses the federal government’s supervision on material risk rather than a financial examiner’s personal, ambiguous standards.

“To continue building on the momentum we’ve seen under the Trump administration, we encourage lawmakers to codify the removal of reputation risk as a component of supervising financial institutions into law to ensure this progress isn’t rolled back under future administrations. Currently, Chairman Tim Scott’s bill — the Financial Integrity and Regulation Management (FIRM) Act — and its companion legislation under the same name in the House, introduced by Representatives Andy Barr and Ritchie Torress, would help achieve this.”

In case you missed it, earlier this year the Office of the Comptroller of the Currency (OCC) announced it will remove reputation risk from its review process and guidance, and soon after, the Federal Deposit Insurance Corporation (FDIC) stated its plans to release a framework that removes all references to reputation risk from its guidance.

Read more about AFFM’s support of the FIRM Act HERE and HERE. Read more about what AFFM members have to say on the legislation HERE.