The U.S. Federal Reserve has announced a significant policy shift, directing its supervisors to no longer consider “reputational risk” when overseeing banks. This move marks a major win for the crypto industry, which has long argued that such scrutiny was unfairly used to debank crypto firms under initiatives like Operation Chokepoint 2.0.
The decision comes as part of an effort to create more transparent and consistent regulatory practices, potentially opening doors for technology and crypto companies previously denied banking services.
Operation Chokepoint 2.0: The Crypto Industry’s Struggle
Following the collapse of several crypto-friendly banks in 2023, over 30 technology and crypto companies in the U.S. were denied access to essential banking services. This phenomenon, dubbed Operation Chokepoint 2.0, stemmed from regulators’ focus on “reputational risk”—the idea that negative publicity about a bank’s clients could harm its standing or financial stability.
Industries deemed “risky,” including crypto, faced immense challenges in securing or maintaining banking relationships. Critics argued that this approach unfairly targeted digital asset businesses, stifling innovation and growth.
In response, the Federal Reserve has now begun revising its supervisory materials, removing references to reputational risk and replacing them with more specific discussions around financial risks. This change aims to provide clarity and consistency for banks while ensuring that regulatory oversight aligns with actual financial concerns rather than subjective judgments.
What Does the Change Mean for Banks?
While the Federal Reserve is eliminating reputational risk from its supervisory framework, it still expects banks to maintain robust risk management practices. According to the board, the change does not impact how banks themselves assess reputational risk as part of their internal operations.
The Fed defined reputational risk as the potential for negative publicity—whether true or not—to harm a bank’s customer base, lead to costly litigation, or reduce revenue. However, critics have long argued that this vague concept was weaponized against industries like crypto, resulting in unwarranted debanking.
The new directive also includes plans to train examiners and ensure consistent implementation across all supervised banks. Additionally, the Federal Reserve will collaborate with other federal bank regulatory agencies to promote uniform practices nationwide.
A Boon for Crypto and Banking
Industry leaders have welcomed the Fed’s decision, calling it a pivotal moment for the crypto sector.
Senator Cynthia Lummis, a vocal advocate for digital assets, stated that aggressive reputation risk policies “assassinated American Bitcoin & digital asset businesses.” She added, “This is a win, but there is still more work to be done.”
Similarly, Rob Nichols, president and CEO of the American Bankers Association, praised the move, saying, “The change will make the supervisory process more transparent and consistent.” He emphasized that banks should be free to make business decisions based on prudent risk management and market dynamics rather than the subjective views of regulators.
For the crypto industry, this shift represents a lifeline. Companies previously excluded from banking services can now explore partnerships with traditional financial institutions, fostering greater integration between crypto and mainstream finance.
Critics Voice Concerns
Despite widespread support, some critics worry that eliminating reputational risk considerations could obscure non-financial issues, weaken oversight, and encourage riskier bank practices. They argue that reputational risk, while subjective, served as a safeguard against activities that could destabilize banks or harm public trust.
As regulators continue to refine their approaches, striking a balance between fostering innovation and maintaining stability will remain a key challenge.
Broader Regulatory Shifts
The Federal Reserve’s announcement is part of a broader trend of U.S. regulators easing crypto-related restrictions.
- In May, the Office of the Comptroller of the Currency (OCC) confirmed that banks under its jurisdiction can trade crypto on behalf of customers and outsource certain crypto activities to third parties.
- In March, the Federal Deposit Insurance Corporation (FDIC) issued guidance stating that institutions under its oversight can engage in crypto-related activities without prior approval.
These developments signal a growing willingness among regulators to embrace digital assets while clarifying the rules of engagement for banks and crypto firms.
What’s Next for Crypto and Banking?
The Fed’s decision to eliminate reputational risk scrutiny removes a significant barrier for crypto companies seeking banking services. It also reflects a broader recognition of the importance of digital assets in the evolving financial landscape.
However, challenges remain. While the removal of reputational risk considerations is a step forward, the crypto industry must continue advocating for clear, fair regulations that foster innovation without compromising stability.
For now, the shift marks a turning point—a chance for crypto businesses to rebuild relationships with traditional banks and integrate more deeply into the global financial system. As Senator Lummis noted, this is a win—but the journey toward full acceptance is far from over.
