Banking and Finance Law Daily Wrap Up, PRUDENTIAL REGULATION—Proposed rule seeks to prohibit consideration of reputational risk by OCC, FDIC, (Oct 8, 2025)

By Joe Cox, J.D.

Proponents argue the rule eliminates needless subjective consideration, while opponents argue that it will blind banks to genuine risk issues.

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have issued a joint notice of proposed rulemaking that would eliminate consideration of reputational risk from supervisory programs (OCC Bulletin 2025-30). The proposed rule seeks to define reputational risk and prohibits the agencies from criticizing or taking adverse action against an institution on the basis of reputation risk. More broadly, the proposed rule would stop the agencies from requiring, instructing, or encouraging an institution to close customer accounts or take other actions on the basis of a person or entity’s political, social, cultural, or religious views or beliefs, constitutionally protected speech, or solely on the basis of politically disfavored but lawful business activities perceived to present reputation risk. Comments are due within 60 days of the publication of the rule in the Federal Register.

In an accompanying press release, the OCC indicated that the rule grew from a concern that “the use of reputation risk can be a pretext for restricting law-abiding individuals’ and businesses’ access to financial services on the basis of political or religious beliefs or lawful business activities.” In an FDIC staff memorandum, that agency expressed concern that consideration of reputational risk “increases subjectivity in banking supervision without adding material value from a safety and soundness perspective.” The FDIC memorandum contrasted a vague and undefined risk with more quantitative issues like credit risk and liquidity risks.

This is the next step in a series of related policies on the same subject. In March, the FDIC announced that it would no longer examine regulated institutions for reputation risk and would remove references to same from guidance resources, including the Comptroller’s handbook (see Banking and Finance Law Daily, Mar. 21, 2025). In June, the Federal Reserve likewise pledged to replace references to reputational risk in its supervisory materials with more specific discussions of tangible financial risk (see Banking and Finance Law Daily, Jun. 24, 2025).

Proponents of the new rule stressed those benefits of elimination of a vague and broad standard in supervision. Acting FDIC Chairman Travis Hill termed reputational risk as a criterion that “adds no value from a safety and soundness perspective and is ripe for abuse.”

The Financial Services Forum issued a statement approving of the new rulemaking. CEO Amanda Eversole hailed the announcement as “another positive step toward focusing bank oversight on real financial risks.”

The Independent Community Bankers of America (ICBA) also issued a positive statement. President and CEO Rebecca Romero Rainey noted, “Prioritizing material financial risks over sometimes arbitrary supervisory concerns related to policies, process, documentation, and other nonfinancial risks facilitates a tailored regulatory framework that allows community banks to meet the needs of the local communities in which they’re based.”

On the other hand, Better Markets termed the new rule as one “that will increase lawbreaking, victimize investors and depositors, and result in more bank failures and bailouts.” Their statement argues that the new rule “put[s] blindfolds on bank supervisors, forcing them to ignore risks and wrongdoing unless the activities affect a bank’s financial condition.” Better Markets President and CEO Dennis Kelleher further stated, “Unethical and risky activities that do not directly affect a bank’s bottom line can and do lead to significant losses, bank failures, taxpayer-funded bailouts, and economic instability.”

Companies: Better Markets; Financial Services Forum; Independent Community Bankers of America

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