Crypto Scores Major Win as Fed Scraps Reputation Risk in Supervision

The Federal Reserve’s pivotal policy change strips away reputational risk limits, opening powerful new avenues for U.S. banks to expand crypto services and fuel digital asset growth.

Fed’s Shift on Reputation Risk Accelerates Crypto’s Banking Integration

A major regulatory shift is paving the way for stronger integration of cryptocurrencies into the U.S. banking system, marking a significant victory for the digital asset industry. The U.S. Federal Reserve Board announced on June 23 that it will no longer include reputational risk in its bank examination programs. The announcement explains:

The Board has started the process of reviewing and removing references to reputation and reputational risk from its supervisory materials, including examination manuals, and, where appropriate, replacing those references with more specific discussions of financial risk.

This change underscores the Fed’s commitment to focusing on measurable financial risks, moving away from subjective criteria that crypto advocates have long argued unfairly targeted digital asset businesses.

Efforts to ensure the consistent implementation of this new approach are underway. The Federal Reserve Board added: “The Board will train examiners to help ensure this change is implemented consistently across Board-supervised banks and will work with the other federal bank regulatory agencies to promote consistent practices, as necessary.” While reputational risk will no longer factor into supervisory programs, the Fed stressed that banks are still expected to maintain robust risk management practices to ensure safety, soundness, and compliance with laws and regulations.

The Federal Reserve’s decision mirrors similar moves by the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC). This coordinated regulatory shift directly addresses longstanding concerns that reputational risk assessments were used to discourage banks from offering services to digital asset companies. It reflects a broader deregulatory agenda under the Trump administration, which includes rescinding prior guidance on crypto-related activities and aims to prevent regulators from denying services based on reputational concerns. These changes are expected to accelerate the adoption of cryptocurrencies within the mainstream financial sector.

U.S. Senator Cynthia Lummis (R-WY) commented on social media platform X:

In February, I exposed the Fed’s aggressive reputation risk policies that assassinated American bitcoin & digital asset businesses. Today, the Fed announced it will scrap reputation risk as a factor in its bank supervision. This is a win, but there is still more work to be done.

Caitlin Long, CEO of Custodia Bank, has been actively combating the use of reputational risk as a regulatory tool to deny banking services to crypto firms. Responding to the Fed announcement, Long detailed on X: “One key step toward ending debanking & Operation Chokepoint 2.0 but some of the tools used to effectuate that sad chapter in banking history are still in place.”