On June 2, the Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and Federal Reserve Board (FRB) jointly announced another step in their effort to eliminate “reputation risk” from the federal banking supervisory framework, an effort prompted by Executive Order 14331 (Guaranteeing Fair Banking for All Americans). The agencies updated a broad set of interagency documents to remove references to “reputation risk” and, in some cases, “reputation,” reinforcing their earlier decision to stop using reputation risk as a basis for examination findings or exerting supervisory pressure on financial institutions to avoid or exit certain banking relationships.

This action fits squarely within the trajectory we described in our earlier post, which analyzed the OCC/FDIC final rule issued on April 7. That rule formally eliminated “reputation risk” as a stand‑alone supervisory risk category for those agencies and sharply limited their ability to criticize or pressure banks based on concerns about customers’ political, religious, or ideological views or lawful, but controversial, lines of business. The FRB proposed a similar rule on February 23 and is expected to finalize it soon, which will bring all three prudential regulators into alignment at the rulemaking level.

Interagency Guidance Changes

The June 2 announcement does not create new duties for banks or relax any existing expectations concerning safety and soundness. Instead, the agencies describe the updates as narrow, technical revisions designed to remove references to “reputation risk” that could be misused as a basis to restrict access to financial services for individuals or businesses with constitutionally protected political or religious beliefs, speech, or lawful activities.

To that end, the agencies have revised a wide range of interagency guidance (listed here) that previously contained references to reputation risk. Such guidance includes the following topics: asset securitization activities, subprime lending programs, banks and thrifts providing financial support to affiliated funds, purchases and risk management of bank‑owned life insurance, customer identification program FAQs, home equity credit risk management, remote deposit capture risk management, counterparty credit risk management, various cyber‑related statements on ATM and card‑authorization attacks, Distributed Denial-of-Service cyber-attacks, cyber insurance, and cyber extortion, statements on operational resilience, elder financial exploitation, and sales of 100% loan participations.

Connection to the Federal Banking Agencies’ Reputational Risk Rules

The OCC/FDIC final rule implementing Executive Order 14331 accomplishes three objectives. First, it removes “reputation risk” as an independent supervisory risk factor, on the agencies’ own view that it has not improved safety and soundness and has introduced subjectivity and inconsistency into examinations. Second, it prohibits adverse supervisory action “on the basis of reputation risk,” including any action intended to pressure a bank to address reputational concerns. Third, it forbids the OCC and FDIC from requiring, instructing, or encouraging institutions to close accounts, deny services, or otherwise modify relationships based on a customer’s political, social, cultural, or religious views or lawful but politically disfavored activities, and makes clear that ideological preferences anywhere within the agencies cannot be a legitimate basis for supervisory pressure.

Those core principles are what the June 2 interagency guidance changes are designed to implement. The FRB’s proposed rule moves in the same direction by codifying the removal of reputation risk from its exam programs and barring the FRB from penalizing banks solely because they serve lawful customers engaged in controversial activities, thus aligning the Board’s formal regulatory posture with the OCC and FDIC.

Next Steps

The federal banking agencies have indicated that they will continue reviewing supervisory materials and may update additional documents as needed. The FRB still needs to finalize its own reputational risk rule, which would complete the tri‑agency transition away from reputation risk as a supervisory tool.

Together with the OCC/FDIC final rule, the interagency guidance revisions are another sign that “reputation risk” is being formally retired as a supervision and examination tool, and that examiners will be expected to ground their concerns in material financial risks and clear legal requirements rather than in subjective determinations designed to pressure financial institutions into either avoiding or exiting relationships with lawful, but disfavored, businesses or individuals based on political affiliations or religious beliefs.