Fed Shifts Stance: U.S. Banks Barred From Blocking Crypto Over ’Reputational Risk’—What’s Next?

The Federal Reserve just dropped a bombshell—U.S. banks can no longer use vague 'reputational risk' excuses to shut out crypto clients. Game on.

### The End of the Reputational Dodge

For years, traditional banks hid behind flimsy compliance theater to avoid crypto like it was a 2008 subprime mortgage. Now, the Fed’s new guidance cuts off that escape route. No more ghosting crypto firms with boilerplate risk warnings.

### Banks vs. Blockchain: The Unlikely Truce

Wall Street’s love-hate affair with digital assets just got more complicated. With the Fed’s move, banks must either build real crypto risk frameworks—or stop pretending they care about 'innovation.' Spoiler: They’ll choose the former (once their profit models catch up to their hypocrisy).

### What’s Really at Stake?

This isn’t just about banking access—it’s a legitimacy earthquake. When the Fed forces banks to engage, it silently endorses crypto as a permanent fixture. Cue the institutional FOMO.

### The Ironic Twist

Funny how 'reputational risk' evaporates when regulators call the bluff. Maybe banks will finally admit their real fear wasn’t dirty money—it was missing out on the next trillion-dollar asset class while hedge funds laughed all the way to the blockchain.

Fed Clarifies Banks Risk Ratings, Dropping Barrier Long Blamed for Crypto Exclusion

The policy shift may ease access to financial services for companies operating in the digital asset space, many of which have faced challenges in maintaining banking ties over the past several years.

“This is a win, but there is still more work to be done,” said U.S. Senator Cynthia Lummis in response to the announcement.

Lummis, a pro-crypto lawmaker from Wyoming, has been vocal about the need for regulatory clarity in the crypto space and has criticized what she called the “assassination” of digital asset businesses in the U.S. through aggressive regulatory practices.

In February, I exposed the Fed’s aggressive reputation risk policies that assassinated American Bitcoin & digital asset businesses.
Today, the Fed announced it will scrap reputation risk as a factor in its bank supervision. This is a win, but there is still more work to be done. https://t.co/AOZSr0IFcp pic.twitter.com/1FtsIcNJsI

According to the Federal Reserve, the removal of reputational risk is meant to clarify how examiners evaluate a bank’s risk management practices.

The updated guidance emphasizes that the formal rating will now reflect both quantitative and qualitative elements tied directly to financial performance and safety.

“This change does not alter the Board’s expectation that banks maintain strong risk management,” the Fed said, adding that the adjustment is not meant to prevent banks from using the concept of reputational risk in their own internal assessments.

Historically, reputational risk was defined by the Fed as the possibility that negative publicity, true or not, could lead to customer losses, litigation, or a drop in revenue.

Critics in the crypto industry have long argued that the term was too broad and too subjective, allowing regulators to apply inconsistent standards, especially when it came to digital assets.

Fed Ends ‘Operation Chokepoint 2.0’ Tactics with Reputational Risk Reform

The decision comes after years of what some have described as “Operation Chokepoint 2.0,” a period during which more than 30 crypto and fintech firms reported being cut off from banking services.

Rob Nichols, president of the American Bankers Association, welcomed the change. “The supervisory process will now be more transparent and consistent,” he said.

“We have long believed banks should be able to make business decisions based on prudent risk management and the free market, not the individual perspectives of regulators,” he added.

The Fed has already begun reviewing and removing references to reputational risk from its guidance materials. It is also planning to train examiners on the new framework and coordinate with other federal banking regulators to ensure consistent application.

The removal of reputational risk references will be done gradually as existing guidance is updated.

Although banks are still required to manage risks in line with existing regulations, the shift could provide relief for crypto firms seeking stable banking relationships in the U.S.

It also follows a broader trend of regulatory recalibration, as several federal agencies appear to be easing crypto-related restrictions introduced in previous years.

The crypto industry scored several wins in recent months as federal regulators eased long-standing banking barriers.

The FDIC removed “reputational risk” from its bank oversight criteria, following the Senate Banking Committee’s approval of the FIRM Act. In May, the OCC confirmed banks can handle crypto trading and delegate services.

The FDIC also greenlit crypto activities without prior approval. On June 17, the Senate passed the GENIUS Act, focused on stablecoin regulation, with strong bipartisan support.

The bill now heads to the House, potentially cementing the first comprehensive US crypto framework.

Still, some observers warn the change could reduce oversight and open the door to riskier bank behavior if not properly monitored. But for the digital asset industry, the removal of reputational risk marks a moment of progress after years of regulatory uncertainty.