Fed reverses course on ‘reputational risk’ – Will banks embrace crypto now?
Crypto community cheered Fed's reversal on key risk standard.
- The Fed’s removal of ‘reputational risk’ was welcomed by the crypto community.
- More banks like JPMorgan and Bank of America are now actively exploring the crypto sector.
The Federal Reserve has removed ‘reputational risk’ in its supervision standards, further offering legal relief to crypto-related firms and users.
In a statement on the 23rd of June, the Fed stated,
“Reputational risk will no longer be a component of examination programs in its supervision of banks…Where appropriate, replacing those references with more specific discussions of financial risk.”
Will banks back crypto now?
Critics have long argued that the vague nature of “reputational risk” leaves it open to political misuse. They referred to widespread crypto debanking that occurred during the Joe Biden administration as a prime example.
In fact, Caitlin Long, Founder of Custodia Bank, stated that the latest move was necessary but not enough to end debanking.
“Necessary but not sufficient to end #debanking — but definitely worth celebrating as an intermediate step!”
However, others like Consumers’ Research’s Will Hild welcomed the move as a ‘huge win’ against unjustified debanking.
“This is a huge win — this was one of the key tools big banks used to try to justify their debanking of conservatives.”
For the unfamiliar, during the Biden era, banks reportedly blocked most crypto users and legal firms from accessing the financial system—a move commonly referred to as “Operation ChokePoint.”
However, under the Trump administration, several guidances that were perceived to be anti-crypto have since been rolled back.
In fact, some TradFi players, who were previously waiting for regulatory clarity, like JPMorgan and Bank of America, have disclosed plans to enter the stablecoins sector.
In addition, the U.S. Housing Chief, Bill Pulte, recently stated that they were considering using crypto holdings for mortgage qualifications.
“We will study the usage of cryptocurrency holdings as it relates to qualifying for mortgages.”
Earlier in June, JPMorgan also unveiled plans to use Bitcoin ETFs as collateral, further cementing increasing support for crypto by TradFi players.
