On February 23, 2026, the Federal Reserve Board issued a proposed rule to codify the removal of reputation risk from its supervision of banks. The Board’s action follows its earlier actions regarding that removal and reiterates its policy against penalizing or prohibiting an institution from banking a customer engaged in legal activity.
In June, the Board announced that reputation risk would no longer be a component of examination programs in its supervision of banks. The proposal aims to help ensure supervisory decisions are based on material financial risks and to increase clarity and facilitate greater precision in supervisory decision-making.
The Board clarified that this action does not alter the Board's expectation that banks maintain strong risk management to ensure safety and soundness and compliance with law and regulation.
Comments on the proposed rule will be accepted until April 27, 2026.
Read the Fed’s press release here.
The Proposed rule can be found here.