Federal Reserve Opens Comment Period on Proposal to Eliminate “Reputation‑Risk” Considerations from Bank Supervision
Washington, D.C., Feb. 24, 2026 – The U.S. Federal Reserve announced on Monday that it is seeking public comment on a draft rule that would codify a recent policy shift: the removal of “reputation‑risk” as a permissible factor in banking supervision. The agency has set a 60‑day window for stakeholders to submit feedback.
Background
In June 2025 the Fed issued guidance directing its supervisory staff to stop pressuring depository institutions to terminate client relationships on the basis of reputational concerns. The instruction limited supervisory scrutiny to traditional financial risk metrics—credit, liquidity, compliance—while barring the use of perceived political, religious, or “unpopular” but lawful business activities as a justification for account closures.
The new proposal would transform that guidance into a formal regulatory requirement, making it unlawful for a bank’s supervisory body to invoke reputation‑risk when recommending or imposing “de‑banking” actions.
Fed’s Rationale
Vice Chair for Supervision Michelle Bowman, who authored the press release, said the agency has received “troubling reports of debanking” in which regulators allegedly pressured banks to cut ties with customers whose political views, religious beliefs, or participation in legally permissible businesses were deemed controversial. Bowman emphasized that discrimination on those bases violates existing civil‑rights law and has no place in the Fed’s supervisory framework.
Industry and Political Reaction
The move has been welcomed by several lawmakers and crypto‑industry voices:
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Sen. Cynthia Lummis (R‑WY) praised the initiative on X, noting that the Fed should not act as both “judge and jury” for digital‑asset firms. She framed the rule as a step toward ending what she called “Operation Chokepoint 2.0” and positioning the United States as a global hub for digital assets.
- Alex Thorn, Head of Firmwide Research at Galaxy Digital, echoed the sentiment, describing the proposal as a “rollback of the chokepoint 2.0” that strengthens access to traditional banking services for crypto businesses.
The term “Operation Chokepoint 2.0” is widely used in the crypto community to refer to a perceived coordinated effort, beginning under the Biden administration, to limit banking services for crypto‑related enterprises through regulatory pressure.
Historical Context
The issue of “de‑banking” has resurfaced in recent years. In 2024 former President Donald Trump reportedly pursued a $5 billion lawsuit against JPMorgan Chase, alleging that the bank closed his accounts for political reasons. While JPMorgan denied any wrongdoing, a former executive later testified that the closure followed the January 6, 2021 Capitol riots. Earlier, the Trump administration had considered an executive order directing regulators to investigate and possibly rescind any policies that encouraged banks to sever ties with clients on reputational grounds.
Potential Impact on the Crypto Sector
If the Fed’s proposal becomes binding, banks would be required to evaluate crypto companies solely on financial risk criteria. This could:
- Reduce regulatory uncertainty for crypto firms seeking correspondent banking relationships, as supervisory guidance would no longer provide a discretionary lever to discourage such partnerships.
- Encourage broader banking participation in the digital‑asset ecosystem, potentially lowering transaction costs and improving liquidity for crypto markets.
- Shift compliance focus toward traditional AML/KYC and financial‑risk controls rather than subjective reputational assessments.
Critics argue that removing the reputation‑risk factor could limit regulators’ ability to address emerging systemic risks associated with certain high‑volatility or politically sensitive crypto activities. The Fed, however, maintains that existing financial‑risk tools are sufficient to capture those concerns.
Key Takeaways
- Proposal Details: The Fed is moving from internal guidance to a formal rule that bars supervisors from using reputation‑risk as a basis for pressuring banks to close accounts.
- Comment Period: Stakeholders have 60 days, until late April 2026, to submit written comments.
- Industry Reception: Crypto firms and pro‑industry legislators view the change as a positive step toward greater access to banking services.
- Regulatory Landscape: The initiative represents the latest effort to curtail “de‑banking” practices that have affected crypto businesses since 2022.
- Future Outlook: Should the rule be finalized, banks may need to adjust internal risk‑assessment frameworks, while regulators will rely more heavily on traditional financial‑risk metrics.
The Fed’s request for comment opens a window for banks, fintech firms, consumer‑advocacy groups, and other interested parties to shape the final language of a rule that could redefine the relationship between traditional finance and the burgeoning digital‑asset sector.
Source: https://cointelegraph.com/news/fed-seeks-feedback-chokepoint-2-0-ending-proposal?utm_source=rss_feed&utm_medium=feed&utm_campaign=rss_partner_inbound
