Federal Reserve’s Reputational Risk Removal: A Landmark for U.S. Crypto Banking

Main Points：

• The Federal Reserve Board (FRB) eliminated “reputational risk” from its bank supervision exam criteria on June 23, 2025.
• This change aligns the FRB with the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC), which removed similar provisions earlier this year.
• By replacing subjective “reputational risk” with objective financial‐risk metrics, regulators aim to foster greater transparency and consistency in bank oversight.
• Crypto firms may now find it easier to secure banking services, potentially driving new product offerings like custodial services, lending, and payment rails.
• Political support is growing: Senator Cynthia Lummis and former President Trump signaled further deregulatory moves in March and June 2025.
• Industry watchers predict accelerated integration of blockchain payment systems and stablecoin custody offerings by U.S. banks.
• Remaining challenges include clarity on how banks will now assess crypto counterparties under traditional risk categories.

Introduction

On June 23, 2025, the Federal Reserve Board announced a significant policy shift: it will no longer include “reputational risk” as a factor in its supervisory examination program for banks. This move is widely viewed as a milestone for U.S. crypto businesses, which have long struggled to obtain and maintain banking relationships amid subjective, often opaque risk assessments. By excising a vague standard and emphasizing quantifiable financial‐risk measures, the Fed joins its fellow regulators in dismantling a key barrier to mainstream banking services for crypto firms.

Background: “Reputational Risk” and Crypto Debanking

Since at least 2021, U.S. crypto companies reported that bank examiners used “reputational risk”—the risk to a bank’s public image—as grounds to block or withdraw banking services. Industry advocates argued that this catch‐all category lacked clear definitions and could be applied inconsistently, effectively “debanking” compliant crypto businesses. In March 2025, the OCC formally removed reputational risk from its Comptroller’s Handbook and examination guidance. The FDIC followed suit soon after, signaling a coordinated regulatory rollback of subjective controls.

FRB’s June 2025 Policy Change

On June 23, the Fed issued guidance directing staff to strip references to reputational risk from supervisory manuals and replace them, where necessary, with specific financial‐risk categories. The Board emphasized that this change does not relax banks’ overall risk‐management obligations, but rather refocuses examiners on quantifiable exposures—credit, market, operational, and compliance risks—that can be consistently measured and compared across institutions.

Key points of the FRB guidance include:

1. Manual Revision: Immediate removal of “reputational risk” references from supervisory handbooks.
2. Staff Education: Training sessions for examiners to implement the new framework uniformly.
3. Interagency Coordination: Ongoing collaboration with OCC and FDIC to harmonize supervisory practices.

Regulatory Timeline

Implications for Crypto Firms

By removing a subjective review hurdle, U.S. banks can now assess crypto clients under established risk categories. Expected benefits include:

• Easier Onboarding: Banks may be more willing to open deposit, custody, and lending accounts for crypto firms.
• Product Innovation: With reduced uncertainty, banks could launch crypto‐linked services, such as stablecoin payment rails or tokenized asset custody.
• Pricing Transparency: Objective risk metrics enable clearer fee and capital requirement calculations, potentially lowering costs for crypto clients.

For example, Signature Bank’s Signet stablecoin platform saw a surge in adoption after the OCC’s March guidance. Observers anticipate similar upticks in bank‐provided crypto services now that the Fed has aligned its policies.

Political and Legislative Context

Crypto advocates celebrated the Fed’s announcement. Senator Cynthia Lummis (R-WY), a longtime crypto proponent, called it “a win for American innovation” on social media, noting her February campaign to expose the Fed’s prior policy. Meanwhile, former President Trump, in a March 2025 executive order, targeted what he termed “Choke Point 2.0”—the previous administration’s implicit blockades to crypto banking. These political endorsements suggest bipartisan momentum toward integrating crypto into mainstream finance. Recent Industry Trends

Beyond regulatory easing, other developments underscore growing institutional crypto adoption:

• Major Banks in Custody: In Q1 2025, BNY Mellon and State Street expanded digital asset custody trials for institutional clients, handling over $5 billion in assets under custody as of May 2025.
• Stablecoin Use Cases: JPMorgan’s JPM Coin saw pilot launches in cross‐border payments with corporate clients, reducing settlement times from days to minutes.
• DeFi Integration: Several regulated banks are exploring on-ledger interoperability, connecting their platforms to decentralized exchanges to offer tokenized money‐market funds.

These trends indicate that regulators’ rollbacks of subjective barriers may accelerate technology pilots and product rollouts.

Practical Blockchain Applications in Banking

With clearer regulatory guardrails, banks can deploy blockchain for real‐world use cases:

1. Tokenized Securities: Issuing equity or debt tokens on permissioned ledgers, enabling 24/7 issuance and settlement.
2. Cross‐Border Payments: Using stablecoins or central‐bank digital currencies (CBDCs) to bypass correspondent banking delays.
3. Collateral Management: Leveraging smart contracts to automate margin calls and collateral transfers in repo and derivatives markets.

Firms like Paxos and Fireblocks are already partnering with banks to provide custody and settlement infrastructure, benefitting from the more predictable oversight environment.

Future Outlook and Challenges

While the reputational risk elimination marks progress, some questions remain:

• Risk Translation: How will examiners map perceived “reputational” concerns—such as ties to illicit activity—into traditional risk categories?
• Consistency Across Regions: Will state-chartered banks and non-federal supervisors adopt similar standards?
• Global Coordination: As U.S. regulators pivot, international frameworks (e.g., Basel Committee proposals) may lag, creating cross-border compliance complexity.

Industry groups are engaging with the Fed, OCC, and FDIC to develop best-practice guidelines for assessing crypto counterparties under credit, operational, and AML risk metrics.

Conclusion

The Federal Reserve’s removal of reputational risk from bank examinations on June 23, 2025 represents a crucial deregulatory step for the U.S. crypto sector. By prioritizing clear, measurable risk factors over subjective reputational assessments, regulators have reduced a key barrier to banking services for crypto businesses. Coupled with earlier actions by the OCC and FDIC—and buoyed by political support—this shift paves the way for broader institutional adoption of digital assets and practical blockchain integrations. As banks and technology providers rush to capitalize on a more predictable oversight environment, the next year promises accelerated innovation in custody, payments, and tokenized securities. Yet, ensuring consistent risk evaluation and international alignment will be critical to sustaining this momentum.