Fed moves to codify removal of 'reputation risk' from supervisory standards…formalizing a ban on crypto debanking

The US Federal Reserve (Fed) plans to codify a move to formally exclude “reputation risk” from bank supervisory standards. The step is drawing attention as it intersects with the long-running “debanking” controversy raised by the digital-asset (cryptocurrency) industry.

According to Cointelegraph on the 23rd (local time), the Fed said in a press release that it will begin soliciting public comment on a plan to institutionalize rules prohibiting the practice of pressuring the closure of customer accounts during the supervisory process on the grounds of reputation risk. The comment period will run for 60 days.

In June last year, the Fed had instructed supervisors not to apply the standard, and the latest measure is part of the process to enshrine that guidance in formal regulation.

Fed Vice Chair Michelle Bowman said she had heard concerns that there have been cases in which financial institutions excluded customers because of political views or religious beliefs, or because they were involved in lawful but unpopular industries. “Such discrimination is illegal and is not a matter to be included in the Fed’s supervisory framework,” she said.

The digital-asset industry and some Republican figures have argued that, during the Biden administration, banks and regulators limited crypto firms’ access to financial services. Welcoming the move amid the controversy dubbed “Operation Choke Point 2.0,” Senator Cynthia Lummis said, “The Fed should not act as judge and jury over crypto companies.” Alex Thorn, head of research at Galaxy Digital, also said that the rollback of Choke Point 2.0 “is continuing.”

Meanwhile, President Donald Trump is pursuing a $5 billion lawsuit against JPMorgan, alleging his accounts were closed for political reasons. The current administration has been weighing steps to direct bank regulators to investigate debanking cases. The Fed’s latest move is being interpreted as part of a policy shift over the digital-asset industry’s access to mainstream financial services.