The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) issued a notice of proposed rulemaking on October 30, 2025, to codify the elimination of reputation risk from their supervisory programs. Published in the Federal Register Volume 90, Number 208, this proposal seeks to prohibit regulators from criticizing or taking adverse actions against banks based on reputation risk. It also bars instructions to banks to alter business relationships due to political, social, cultural, or religious views, constitutionally protected speech, or lawful but politically disfavored activities perceived as reputation risks. Comments are due by December 29, 2025. This move addresses concerns that reputation risk introduces undue subjectivity into supervision without enhancing bank safety or soundness. It responds to broader policy objectives, including those in Executive Order 14331, issued by President Trump, which emphasizes fair banking access for all Americans.
Background and Rationale
The agencies' decision stems from decades of supervisory experience. In the 1990s, regulators shifted to risk-based frameworks, incorporating reputation risk alongside categories like credit, liquidity, and operational risks. The OCC adopted 'supervision by risk' in 1995, identifying nine risk types, including reputation risk. The FDIC similarly referenced it in manuals and enforcement actions. However, the agencies now argue that reputation risk does not materially contribute to safety and soundness assessments. They note that potential harms from reputational issues typically manifest through other, more quantifiable risks, such as credit or operational failures, which supervisors already address under existing authorities.
Key players include the OCC, led by figures like Jonathan Fink and Joanne Phillips, and the FDIC, with contributors such as Sheikha Kapoor and James Watts. The proposal aligns with statutory mandates under 12 U.S.C. 1 for the OCC, focusing on safety, soundness, fair access, and fair treatment, and under the Federal Deposit Insurance Act for the FDIC. It also echoes concerns in Executive Order 14331 by President Trump, which highlighted reputation risk as a potential pretext for restricting access to financial services based on beliefs or lawful activities.
Key Provisions of the Proposed Rule
The rule would prohibit the agencies from using reputation risk as a basis for criticism or adverse actions, defined broadly to include negative feedback in examination reports, rating downgrades under systems like the Uniform Financial Institutions Rating System, denials of applications, or heightened capital requirements. It defines reputation risk as any risk negatively impacting public perception of a bank for reasons unrelated to its financial condition, regardless of labeling.
Additionally, the rule bars regulators from requiring or encouraging banks to terminate, modify, or initiate business relationships based on reputation risk or factors like political views or lawful activities. This includes relationships with customers, third-party providers, or institution-affiliated parties, as defined in 12 U.S.C. 1813(u). Exceptions apply to sanctions by the Office of Foreign Assets Control and enforcement of Bank Secrecy Act requirements under 31 U.S.C. Chapter 53, but not as pretexts for reputation-based actions.
Conforming amendments would remove reputation risk references from OCC regulations in 12 CFR Parts 1, 4, and 30, and FDIC regulations in 12 CFR Parts 302 and 364. For instance, OCC's safety and soundness standards in Appendix C would excise mentions of reputation risk in mortgage lending contexts.
Relevant Legal Precedents and Political Forces
This proposal builds on precedents emphasizing objective supervision. The OCC's authority under 12 U.S.C. 93a and the FDIC's under 12 U.S.C. 1819 allow rulemaking to refine supervisory practices. It addresses criticisms of subjectivity, similar to challenges in cases like those involving fair lending under the Equal Credit Opportunity Act, where regulators must avoid bias.
Politically, the rule responds to concerns about regulatory overreach. Executive Order 14331 by President Trump criticized reputation risk as a tool for restricting access based on views or industries, such as energy or firearms, deemed politically disfavored but lawful. Perspectives vary: supporters argue it promotes neutrality and economic efficiency, while critics might worry it limits regulators' ability to address emerging risks, though the agencies assert other tools suffice.
Potential Implications
In the short term, banks may experience reduced supervisory burden, as resources shift from subjective reputation assessments to concrete risks like liquidity or cybersecurity. This could enhance predictability, allowing institutions to pursue profitable relationships without fear of regulatory reprisal.
Long-term effects include improved fair access to banking, potentially benefiting industries previously pressured to de-bank. However, it raises debates on whether removing reputation risk oversight could overlook non-financial harms, though the agencies cite evidence that such risks rarely drive bank failures independently. Different perspectives highlight tensions: consumer advocates may see risks to public trust, while free-market proponents view it as reducing government interference in private decisions.
Forward-Looking Considerations
The proposal underscores a shift toward data-driven supervision, potentially setting a model for other regulators. Next steps include public comments, with possible revisions before finalization. Ongoing debates may focus on balancing objectivity with comprehensive risk management, while challenges could arise in enforcing anti-evasion measures against pretextual actions.