The bank announced that it will no longer consider the "reputational risk" standard in its bank inspections.
In a statement issued just minutes ago, it was mentioned that a review of references to reputational risk in audit materials has begun, and that these references will be replaced with more accurate assessments of financial risks as appropriate.
The Federal Reserve confirmed that this change does not alter its expectations that banks will implement effective risk management, stating: "This change does not negate the Federal Reserve's expectations that banks maintain effective risk management practices to ensure the safety and soundness of banks."
Federal Reserve Chairman Jerome Powell promised in February that he would eliminate phrases that allow regulators to monitor banks for "controversial comments or activities."
You can view the official press release from the Federal Reserve Bank here.
This move may be welcomed by some sector representatives and Republican politicians who have long opposed this practice, which is considered a "too loose" and "unfair" regulatory standard, arguing that it has led regulators to take strict action against banks dealing with politically sensitive clients or cryptocurrency companies, even when these clients do not pose a direct threat to the bank's security.
Similarly, the Federal Deposit Insurance Corporation (FDIC) mentioned in a letter to Congress in March that it plans to completely "remove" reputational risk from its regulatory approach. Earlier this year, another regulatory body, the Office of the Comptroller of the Currency, announced that it would remove this term from its supervisory guidelines.
*This is not investment advice.
