Federal Reserve Proposes Rule to End Debanking Based on Reputation Risk
The Federal Reserve has initiated a public comment period on a proposal to eliminate reputation risk from its supervisory framework, marking a significant policy shift aimed at preventing banks from cutting off access to lawful businesses due to political or social concerns.
Vice Chair Michelle W. Bowman emphasized that supervisory pressure should not force banks to drop clients engaged in legal activities, citing "troubling cases of debanking." The MOVE has been applauded by Senator Cynthia Lummis as a step against what critics label Operation Chokepoint 2.0—a perceived campaign to marginalize certain industries through financial exclusion.
The proposed rule WOULD formalize the removal of reputation risk as a factor in bank examinations, ensuring decisions are based solely on financial considerations. This follows a 2025 clarification that initially sought to address the issue.
