Fed requests comment on plan to remove reputation risk from supervision of banks

The Fed issued a notice of proposed rulemaking (NPR) on February 23, 2026 to formally remove “reputation risk” from its supervisory framework and is taking comment through April 27, 2026.

What the proposal does

• Codifies that “reputation risk” is no longer a component of Fed examination programs, building on the June 2025 policy change that already removed it from exam materials and guidance.

• Defines reputation risk (for purposes of the prohibition) as the potential that negative publicity regarding an institution’s business practices, whether true or not, leads to loss of customers, costly litigation, or revenue reductions.

• Prohibits Fed supervisors from encouraging or compelling Fed‑supervised institutions to deny, terminate, or condition services based on:

  • Constitutionally protected political or religious beliefs, associations, or conduct.

  • Involvement in lawful but politically disfavored activities that examiners might previously have characterized as “reputation risk.”

Policy and legal context

• The NPR responds directly to “debanking” concerns, where supervisors were alleged to have used reputation risk as a lever to push banks away from certain lawful but controversial customers or industries.

• Vice Chair for Supervision Michelle Bowman explicitly links the change to cases where supervisors pressured institutions due to customers’ political views, religious beliefs, or lawful but disfavored businesses, and states that such discrimination is unlawful and has “no role” in the Fed’s supervisory framework.

• The proposal is also framed as implementing President Trump’s August 7, 2025 Executive Order 14331, “Guaranteeing Fair Banking for All Americans,” which directs banking agencies to adopt policies ensuring that financial institutions do not use reputation risk to restrict access to lawful banking services.​

Supervisory implications for banks

• The Fed emphasizes that the change is about refocusing on core financial risks and improving clarity and objectivity, not about relaxing safety‑and‑soundness expectations. Banks are still expected to maintain strong risk management and comply with all applicable laws and regulations.

• Supervisory decisions are to be based on “material financial risks” (credit, market, liquidity, operational, etc.), with feedback that is more specific and remediable than generic references to “reputation risk.”

• The proposal would align the Fed with parallel initiatives at the OCC and FDIC, which have also moved to eliminate references to reputation risk from supervisory materials and have their own NPR on prohibiting the use of reputation risk by regulators.

Process and comment details

• The proposal is titled “Prohibition on Use of Reputation Risk or Other Supervisory Tools to Restrict Access to Financial Services” and appears in the Federal Register (Vol. 91, No. 38, February 26, 2026).

• Comment deadline for the Fed’s NPR is April 27, 2026.

• The Board’s materials invite comment on the scope of the prohibition, the definition of reputation risk, how to balance examiner discretion with the ban on using reputation risk to influence customer selection, and interaction with existing fair lending, BSA/AML, and other compliance obligations.