By Dave Kovaleski, Financial Regulation News
The Federal Reserve Board is seeking public feedback on a proposal to codify the removal of reputation risk from its supervision of banks.
The proposal reiterates the Fed board’s policy against penalizing or prohibiting an institution from banking a customer engaged in legal activity.
“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,” Federal Reserve 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.”
In June, the board announced that reputation risk would no longer be a component of examination programs in its supervision of banks.
This new proposal would build on that announcement to help ensure supervisory decisions are based on material financial risks. It also seeks to increase clarity and facilitate greater precision in supervisory decision-making. Further, it would support the Board’s focus on core financial risk in its supervision of banks.
However, this change does not alter the board’s expectation that banks maintain strong risk management to ensure safety and soundness and compliance with law and regulation.
Comments are due within 60 days after publication in the Federal Register.