The Federal Reserve (FED) announced on Monday (June 24) that it will instruct regulators not to consider "reputational risk" as a basis for evaluation when reviewing banks, and will remove this standard from its regulatory manuals and related documents. This move is seen as a response to long-standing criticisms from the financial industry regarding the subjectivity of this indicator, aligning it with other major financial regulatory agencies.
What is "reputational risk"? The Federal Reserve (FED) has decided not to intervene.
According to the definition of The Federal Reserve (FED), "reputational risk" refers to the potential risk of damage to banking operations due to negative public opinion, which can even trigger costly lawsuits. However, many banking practitioners indicate that such risk assessments often involve subjective judgments, leading to sanctions against some legally compliant business activities that are not recognized by regulators. In response, The Federal Reserve (FED) ultimately decided to phase out "reputational risk" and shift the focus to quantifiable financial risk indicators.
In line with other institutions, federal agencies are uniformly adjusting their regulatory direction.
The recent policy shift by the Federal Reserve (FED) aligns with other banking regulatory agencies in the United States, including the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), which have recently begun to eliminate the practice of using "reputational risk" as a basis for bank reviews. This reflects an increasing emphasis on "enforceability" and "objectivity" in the overall regulatory environment.
Reputational risk can still be self-assessed by banks, and the responsibility for risk control has not diminished.
Although official regulations no longer include reputation risk as an assessment item, the Federal Reserve (FED) still emphasizes that banks themselves can take reputation risk into account during the decision-making process. The Federal Reserve (FED) also reminds that banks should maintain a sound risk management framework to respond to diversified market challenges and ensure stable operations.
Why was the reputation risk assessment canceled? Industry pressure is the key.
One of the main reasons for canceling the "reputational risk" assessment comes from long-term pressure from the banking industry. Practitioners believe that reputational risk is highly subjective, which can lead to inconsistent regulatory outcomes and even affect the promotion of legitimate innovative businesses. Especially in the context of the rapid development of virtual assets and financial technology, reputational issues have become more ambiguous and are more likely to generate disputes.
This decision indicates that U.S. financial regulators are moving towards more transparent, data-driven risk management, and are attempting to balance regulation with innovation. Although "reputational risk" has been removed from the regulatory perspective, public image remains crucial for banks; however, the responsibility is now more clearly placed back on the financial institutions themselves.
This article states that the Federal Reserve (FED) will no longer regulate banks' "reputational risk" and will instead focus on financial risk management. It first appeared in Chain News ABMedia.
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The Federal Reserve (FED) will no longer regulate banks' "reputational risk" and will instead focus on financial risk management.
The Federal Reserve (FED) announced on Monday (June 24) that it will instruct regulators not to consider "reputational risk" as a basis for evaluation when reviewing banks, and will remove this standard from its regulatory manuals and related documents. This move is seen as a response to long-standing criticisms from the financial industry regarding the subjectivity of this indicator, aligning it with other major financial regulatory agencies.
What is "reputational risk"? The Federal Reserve (FED) has decided not to intervene.
According to the definition of The Federal Reserve (FED), "reputational risk" refers to the potential risk of damage to banking operations due to negative public opinion, which can even trigger costly lawsuits. However, many banking practitioners indicate that such risk assessments often involve subjective judgments, leading to sanctions against some legally compliant business activities that are not recognized by regulators. In response, The Federal Reserve (FED) ultimately decided to phase out "reputational risk" and shift the focus to quantifiable financial risk indicators.
In line with other institutions, federal agencies are uniformly adjusting their regulatory direction.
The recent policy shift by the Federal Reserve (FED) aligns with other banking regulatory agencies in the United States, including the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), which have recently begun to eliminate the practice of using "reputational risk" as a basis for bank reviews. This reflects an increasing emphasis on "enforceability" and "objectivity" in the overall regulatory environment.
Reputational risk can still be self-assessed by banks, and the responsibility for risk control has not diminished.
Although official regulations no longer include reputation risk as an assessment item, the Federal Reserve (FED) still emphasizes that banks themselves can take reputation risk into account during the decision-making process. The Federal Reserve (FED) also reminds that banks should maintain a sound risk management framework to respond to diversified market challenges and ensure stable operations.
Why was the reputation risk assessment canceled? Industry pressure is the key.
One of the main reasons for canceling the "reputational risk" assessment comes from long-term pressure from the banking industry. Practitioners believe that reputational risk is highly subjective, which can lead to inconsistent regulatory outcomes and even affect the promotion of legitimate innovative businesses. Especially in the context of the rapid development of virtual assets and financial technology, reputational issues have become more ambiguous and are more likely to generate disputes.
This decision indicates that U.S. financial regulators are moving towards more transparent, data-driven risk management, and are attempting to balance regulation with innovation. Although "reputational risk" has been removed from the regulatory perspective, public image remains crucial for banks; however, the responsibility is now more clearly placed back on the financial institutions themselves.
This article states that the Federal Reserve (FED) will no longer regulate banks' "reputational risk" and will instead focus on financial risk management. It first appeared in Chain News ABMedia.