The Senate Banking Committee announced on March 25 that the Federal Deposit Insurance Corporation (FDIC) will remove reputational risk as a factor in bank oversight. White House “Crypto Czar” David Sacks stated that this decision is a major adjustment, labeling it “a significant win for the crypto industry.”
He elaborated:
“In practice, this ambiguous and subjective criteria was often used to justify the debanking of legitimate crypto businesses as part of Operation Chokepoint 2.0. Banking standards should be objective and quantitative, rather than based on the potential for unfounded narratives.”
Operation Chokepoint 2.0 was reportedly a coordinated initiative by regulators during the previous administration to discourage banks from interacting with the crypto sector, including denying banking services to related enterprises.
Sacks also praised Senator Tim Scott for spearheading the legislative push through the FIRM Act, which aims to enshrine the elimination of reputational risk standards across all federal financial regulators. The Act stipulates that institutions should not be denied financial services based on perceptions of risk that are not linked to any legal or regulatory violation.
Earlier in March, Scott voiced his concerns about using reputational risk to undermine entire industries, deeming it a “weaponization of rules.”
Following the OCC
This development follows a recent announcement from the Office of the Comptroller of the Currency (OCC), which stated that it would stop evaluating regulated institutions for reputational risk and remove references to this term from its supervisory manual and guidance.
According to the OCC, regulators had never used reputational risk as a blanket rationale for supervision; however, the removal is aimed at clarifying that assessments should focus solely on operational, legal, and financial risks. In a statement made on March 20, acting Comptroller Rodney E. Hood stressed that the OCC’s oversight should be based on banks’ risk management procedures, not public perceptions of specific business practices.
A Win for Crypto
Representative French Hill, vice chair of the House Financial Services Committee, echoed Sacks’ views, calling this decision a favorable turn for the US crypto sector. He further remarked:
“During the previous administration, the FDIC was misusing resources to target crypto businesses instead of prioritizing its main mission. Now, Acting Chair Travis Hill and the current administration are making strides to correct that.”
Matthew Sigel, who heads digital assets research at VanEck, celebrated the FDIC’s choice as a substantial victory against Chokepoint 2.0, noting that eliminating reputational risk leads to “fewer justifications for debanking sectors they oppose.”
Nic Carter, a partner at Castle Island Ventures and co-founder of a blockchain data aggregator, explained that reputational risk creates a feedback loop that enables bank regulators to exclude any industry they find unappealing.
James Kibbie from Galaxy Digital remarked that it’s encouraging to see the current administration taking actions to remove ambiguous and subjective policies while putting an end to Operation Chokepoint 2.0. He emphasized that the reliance on reputational risk has seriously stifled “American innovation.”