Senate Banking Committee Chairman Tim Scott (R-S.C.) has introduced the Financial Integrity and Regulation Management (FIRM) Act, aiming to remove reputational risk from federal supervision. This legislation seeks to address the issue of debanking and has garnered support from all Republican members of the Senate Banking Committee, as well as endorsements from key stakeholders in the financial services industry and organizations representing industries that have been affected by debanking.
Chairman Scott emphasized the significance of this bill during an appearance on Fox Business’s “Mornings with Maria.” He stated, “Eliminating reputational risk is the way we allow our banks to make decisions on credit worthiness, not on fear of America’s regulators…what a regulator is able to do with reputational risk is to say that the institution may lose market cap because their banking industries that may cause reputation – loss of their positive reputation – in the marketplace. It’s just as we say in South Carolina, hogwash. It’s merely a weaponization of their rules.”
The Wall Street Journal reported that Sen. Tim Scott believes concerns over reputational damage are contributing to debanking practices where banks avoid certain businesses. The FIRM Act aims to end regulatory oversight concerning reputational risks.
According to American Banker, the bill would not impact quantitative supervisory measures like concentration or liquidity risks but would prohibit entities such as the Federal Deposit Insurance Corp., Federal Reserve, National Credit Union Administration, and Office of the Comptroller of the Currency from using reputational risk in supervisory ratings.
Politico highlighted that debanking has been a significant topic for Congress this session, especially within Scott’s committee agenda. Greg Baer, president and CEO of Bank Policy Institute, described the legislation as “an important step toward restoring fairness and integrity in how regulators oversee the banking industry.”
The Hill noted Republicans’ longstanding concerns about debanking since Operation Choke Point under President Obama. This initiative discouraged banks from working with high-risk businesses but officially ended in 2017. However, recent trends labeled “Operation Choke Point 2.0” have emerged amid crypto’s rise.
CoinDesk reported that Senator Scott’s bill follows complaints about crypto businesses being systematically excluded from U.S. banking relationships due to perceived regulatory biases against them.
Axios shared that state finance officials across 26 states expressed support for Scott’s proposal through a letter condemning what they called discriminatory practices by regulators misusing authority against lawful customers.
