OCC Drops "Reputational Risk" to Ease Bank Services to Controversial Industries

The Office of the Comptroller of the Currency (OCC) has announced that it will remove the term "reputational risk" from its examination manual for supervisors. This decision comes after increased pressure from Republicans and is aimed at preventing banks from refusing to serve clients involved in industries that may be perceived negatively by the public, including the cryptocurrency sector.

Acting Comptroller of the Currency Rodney E. Hood stated that the OCC's examination process has always focused on ensuring appropriate risk management for bank activities, rather than judging the public opinion of specific activities. This move is seen as a way to prevent banks from letting politics interfere with their decision-making processes, even if the activities in question pose no actual financial risk to the institution.

Those who support the removal of "reputational risk" from the examination guidelines argue that banks have been unfairly blocking customers engaged in unpopular activities. Under the new guidelines, banks will need to prove that a potential client genuinely endangers the institution to justify not accepting them as a client. This shift in policy is expected to make it easier for banks to serve clients in industries that may be controversial but do not pose a financial risk.

This decision by the OCC is part of a broader effort to address concerns about "debanking," where banks refuse to provide services to certain clients due to reputational concerns. The move is seen as a step towards ensuring that banks focus on financial risk rather than public perception when making decisions about their clients.

While the OCC's decision is a significant change in policy, it is important to note that risk management remains a central focus of the examination handbook. Banks will still be required to assess and manage the risks associated with their activities, but they will no longer be able to use reputational risk as a justification for refusing to serve clients.

This change in policy is expected to have a significant impact on the cryptocurrency industry, as well as other industries that may be perceived negatively by the public. By removing the term "reputational risk" from the examination manual, the OCC is sending a clear message that banks should focus on financial risk rather than public opinion when making decisions about their clients.