Federal financial regulators are moving to eliminate reputational risk as a regulatory tool following the advancement of Chairman Tim Scott’s legislation by the Senate Banking Committee. The Financial Stability Oversight Council Meeting on March 20 included support from Treasury Secretary Scott Bessent for banking agencies to remove reputational risk as a supervisory factor. Subsequently, the Office of the Comptroller of the Currency stated it will stop examining regulated institutions based on reputational risk and will expunge related references from its materials. The Federal Deposit Insurance Corporation also announced parallel steps.
Chairman Tim Scott stated, “Debanking federally legal businesses and law-abiding citizens is un-American, but unfortunately, we’ve seen federal banking regulators abuse ‘reputational risk’ to carry out political agendas and force financial institutions to cut off access to financial services for Americans. Fortunately, the Trump administration has taken action to end the use of this subjective tool, and the FIRM Act – which advanced out of the Senate Banking Committee – will eliminate all references to reputational risk in regulatory supervision.”
Chairman Scott has held several hearings focused on the issue, accusing the Biden administration’s regulators of exploiting their power to debank individuals and businesses. During a committee meeting with Federal Reserve Chair Jerome Powell, Scott highlighted the issue, and Powell committed to collaboration with the committee to address it. Scott also held a roundtable with financial leaders on related concerns.
Scott’s efforts have led to the introduction of the Financial Integrity and Regulation Management (FIRM) Act, which aims to prevent regulators from using reputational risk in supervision. The bill has received endorsements from various financial associations and organizations impacted by debanking practices.
