Fed Drops ’Reputational Risk’ Barrier—Banks Now Free to Dive Into Crypto

Wall Street's watchdog just handed banks a get-out-of-jail-free card for crypto ventures. The Federal Reserve quietly axed "reputational risk" from its examination manual—effectively greenlighting digital asset deals without the regulatory side-eye.

The move comes as traditional finance finally admits what crypto natives knew all along: the real reputational risk was avoiding blockchain profits while hedge funds made bank. Now your neighborhood banker can shill Bitcoin ETFs with the same enthusiasm they once reserved for subprime mortgages.

One veteran examiner quipped: "Guess we'll have to find new ways to justify those six-figure consulting fees." The manual update notably lacks any mention of how banks should explain crypto losses to retirees—but hey, innovation waits for no fiduciary duty.

Supervisors drop metric as Trump pressures Powell over rates

The Fed is now aligned with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, who already moved away from the reputational test earlier. The announcement clarified that banks are still expected to maintain strong internal controls, but can choose on their own whether public perception matters in specific business deals. In other words, the Fed is done babysitting them over headlines.

This decision is happening at the same time the central bank is under heavy political pressure. President Donald Trump, back in the WHITE House, is escalating his public attacks on the Federal Reserve and Chair Jerome Powell, calling him a “Total and Complete Moron” in a Friday post on social media.

The insults followed a private Oval Office meeting last month between the two men. TRUMP has demanded an aggressive cut to interest rates, from the current level of 4.3% down to 1–2%—to lower the cost of financing US debt. He warned that if Powell doesn’t act, he’ll get blamed for any downturn.

Powell, in response, said last week, “From my standpoint, it’s not complicated. What everyone [at the Fed] wants is a good, solid, American economy.” He is scheduled to appear before Congress on Tuesday for a monetary policy hearing, where lawmakers are expected to question both the reputational rule change and Trump’s interference.

Trump’s camp is also applying pressure through other officials. Commerce Secretary Howard Lutnick claimed this week that inflation fears from tariffs are overblown, backing Trump’s demand for lower rates. Inside the Fed itself, a split is opening up.

Of all the officials who’ve spoken since last week’s meeting, only two have shown any interest in a July rate cut, and both were appointed by Trump. One of them, Michelle Bowman, said on Monday that she’s more concerned about rising unemployment than inflation. That’s a major change for someone who’s usually laser-focused on price stability.

Trump eyes Powell’s replacement as Supreme Court limits firing

Powell’s term ends in less than a year, but removing him outright won’t be easy. The Supreme Court last month refused Trump’s emergency request to fire federal commissioners at will, signaling that Powell is legally protected—at least for now. That’s forced Trump to consider a different move: announcing Powell’s successor before the term is up.

That early announcement WOULD install a “shadow chair” to undermine Powell’s authority in real time. But that plan has its own risks. A replacement seen as too loyal to Trump could lose credibility with markets and face resistance from other Fed officials. If that person defends Powell’s current policies, they risk being tossed aside before taking office. If they attack Powell publicly, they lose the support of the people they’ll need once they’re in charge.

For now, Trump seems content to keep the pressure on. He wants the public to know who to blame if things go south. And the Federal Reserve, while finally giving the banking sector relief on crypto compliance, is caught in a standoff between institutional stability and a president who doesn’t mind dragging the fight into full view.

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