Federal Reserve Proposes Codifying Reputation Risk Removal in Bank Supervision

On February 23, 2026, the Federal Reserve Board announced a proposal aimed at codifying the removal of reputation risk from its bank supervision framework. This proposal seeks to establish clear guidelines that will prevent financial institutions from being pressured to terminate relationships with customers based on their political or social beliefs.

Key Details of the Proposal

The Federal Reserve Board’s proposal stems from earlier actions taken to eliminate reputation risk as a consideration in their supervisory processes. Notably, this initiative aligns with the Board’s commitment to ensuring that supervisory decisions are grounded in tangible financial risks.

Statement from Federal Reserve Officials

Vice Chair for Supervision, Michelle W. Bowman, emphasized the issues surrounding ‘debanking’. She stated, “We have heard troubling cases where concern over reputation risk pressured financial institutions into debanking customers over their political views or lawful business activities.”

A Shift in Supervisory Focus

• The proposal underscores the Federal Reserve’s standpoint that discrimination based on personal beliefs is unlawful.
• It aims to enhance clarity and precision in supervisory decisions.
• The proposal builds upon a policy announced in June that eliminated reputation risk as a component in examination programs.

Implications for Bank Supervisors

This change does not relax the Federal Reserve’s expectations regarding risk management. Banks must continue to uphold rigorous standards for safety, soundness, and compliance with regulatory laws. The intention is to ensure that financial institutions focus on core financial risks while maintaining strong risk management practices.

Next Steps

The Federal Reserve has opened the proposal for public comments, allowing stakeholders 60 days following its publication in the Federal Register to provide feedback. This step is crucial in refining the proposed changes and finalizing policies regarding reputation risk in bank supervision.

For further inquiries, media representatives can reach out via email or telephone as provided in the release.