The US Federal Reserve (Fed) has officially eliminated the “reputation risk” criterion in its bank stress test, a decision announced on Monday in Washington.
Supervisors will no longer use this vague metric to evaluate financial institutions, ending a policy that many banks said gave regulators room to over-intervene, especially in cryptocurrency-related services. Instead, the Fed is focusing on more tangible financial risks such as liquidity, credit, and operational risks.
The Fed’s official statement confirmed that any mention of reputational risk would be removed from guidance and supervisory procedures, meaning banks would not be penalized based on negative impressions alone, even if the activity was legal and profitable.
Eliminating reputational risk in banking supervision
The change comes after years of complaints from bank executives that reputational risk assessments allowed examiners to reject deals based on personal bias or political pressure. Much of the backlash has focused on cryptocurrencies, where partnerships have often been cut off simply because regulators were unhappy with the public image.
Fed in sync with FDIC and OCC
The Fed has now aligned itself with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), which had previously withdrawn from the reputational risk criteria. Banks are still required to maintain strong internal controls, but the public perception of specific transactions is now up to the bank.
In other words, the Fed is no longer overly concerned with negative press coverage, creating more favorable conditions for legitimate activities in the cryptocurrency sector.
Political pressure and interest rate policy
The decision comes amid significant political pressure on the Fed. Former President Donald Trump, now a powerful figure, has repeatedly publicly criticized Fed Chairman Jerome Powell, calling him a “total moron” on social media.
Earlier, in a private meeting in the Oval Office, Trump asked the Fed to quickly lower interest rates from the current level of 4.3% to 1-2% to reduce the financial cost of US public debt. He warned that he would blame Powell if an economic recession occurred.
In response, Powell affirmed: “The Fed’s goal is a strong and stable US economy.” The Fed Chairman is scheduled to attend a hearing before Congress to explain the change in supervisory criteria and the intervention of politicians.
Internal divisions and new views on interest rates
In addition to Trump, other senior officials have also put pressure on the Fed, including Commerce Secretary Howard Lutnick, who downplayed concerns about tariff-induced inflation and advocated for lower interest rates. Within the Fed, only two Trump-appointed members supported a rate cut in July.
One of them, Michelle Bowman, said she was more concerned about rising unemployment than inflation, a significant shift in monetary policy stance.
Powell replacement plan and legal challenge
Powell's term is less than a year old, but firing him will not be easy. The Supreme Court has already rejected Trump's emergency request to fire federal commission members at will, showing that Powell is protected by law.
Therefore, Trump is considering announcing Powell's successor before the end of his term, in order to create pressure and reduce the current Chairman's reputation. However, this plan also contains risks when the successor may lose prestige or face internal reaction from the Fed.
Trump is still keeping up the pressure to shape public opinion and find someone to blame if the economy goes south, while the Fed has just made progress in reducing oversight of cryptocurrency services while also being caught in a conflict over institutional and political stability.
Source: https://tintucbitcoin.com/fed-day-manh-tien-dien-tu-ngan-hang/
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