FDIC Ditches Reputational Risk to Shield Banks from Political Debanking Pressure

The Federal Deposit Insurance Corporation (FDIC) is set to redefine its regulatory approach to banks' engagement with crypto-asset activities, aligning with broader efforts to address allegations of politically motivated "debanking." In a significant shift, the FDIC has rescinded prior restrictive guidance-most notably Financial Institution Letter (FIL)-16-2022-and issued FIL-7-2025, which clarifies that FDIC-supervised institutions may pursue permissible crypto-related activities without requiring prior regulatory approvalFDIC Clarifies Process for Banks to Engage in Crypto-Related Activities^[1]. Acting FDIC Chairman Travis Hill emphasized that this move marks a departure from "flawed" past policies, signaling a more flexible framework to enable banks to explore blockchain and digital asset opportunitiesFDIC Clarifies Process for Banks to Engage in Crypto-Related Activities^[1].

Central to the FDIC's current agenda is a proposed rulemaking to eliminate the use of "reputational risk" as a basis for regulatory actionsFDIC to review rule that may shape banks’ crypto relationships^[2]. The rule, slated for discussion at the FDIC Board's October 7 meeting, aims to prohibit supervisors from criticizing banks or compelling them to terminate accounts based on political, social, or religious considerationsTrump signs executive order to stop banks from …^[6]. This initiative aligns with President Donald Trump's August 2025 executive order, which mandates the removal of reputational risk as a factor in banking oversight and directs regulators to investigate past instances of "unlawful debanking"Trump issues executive order banning unlawful debanking of ...^[10]. The order explicitly targets practices critics allege have unfairly targeted crypto firms and politically aligned businesses, such as Trump Organization accounts.

The FDIC's focus on reputational risk follows a broader regulatory trend. The Office of the Comptroller of the Currency (OCC) and the Federal Reserve have already announced similar measuresPresident Trump signs executive order to stop debanking of the …^[9]. Acting FDIC Chairman Hill stated the agency is "actively working on a rulemaking to ensure supervisors do not criticize activities or actions on the basis of reputational risk"President Trump signs executive order to stop debanking of the …^[9]. This shift reflects mounting political pressure, with lawmakers like House Financial Services Committee Chair French Hill criticizing the FDIC for "wasting resources" on crypto firmsPresident Trump signs executive order to stop debanking of the …^[9].

The FDIC's reforms extend beyond regulatory language. Under Hill's leadership, the agency has rescinded Biden-era "prior notification" requirements for crypto activitiesStatement by FDIC Acting Chairman Travis Hill at September 2025 …^[7], while also advancing implementation of the GENIUS Act-a U.S. law governing stablecoins. The FDIC's updated approach includes publicizing hundreds of pages of supervisory correspondence to increase transparency and foster trustStatement by FDIC Acting Chairman Travis Hill at September 2025 …^[7]. These steps underscore a strategic pivot toward promoting innovation while maintaining safety and soundness standardsFDIC Clarifies Process for Banks to Engage in Crypto-Related Activities^[1].

The implications for the banking sector are significant. Critics argue that prior reputational risk frameworks enabled regulators to pressure banks into cutting ties with crypto firms, a practice dubbed "Operation Chokepoint 2.0". By removing this constraint, the FDIC aims to ensure fair access to financial services for all Americans, including those in the digital asset industry. However, the FDIC has not yet released detailed timelines for finalizing the rulemaking, leaving uncertainty about how swiftly banks can adapt to the new guidanceFDIC ‘plans to eradicate’ focus on reputational risk^[4].

The FDIC's actions are part of a larger interagency effort to modernize financial regulations. The agency is collaborating with the President's Working Group on Digital Asset Markets and other banking regulators to revise interagency documents on crypto-asset activitiesFDIC Clarifies Process for Banks to Engage in Crypto-Related Activities^[1]. These efforts align with the Trump administration's broader push to liberalize financial access, including a parallel executive order allowing 401(k) investors to allocate funds to alternative assets like cryptocurrencies.