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Highlights
- The Federal Reserve has abandoned reputational risk as a component in bank examinations.
- The requirement hindered the ability of US banks to offer cryptocurrency services.
- The OCC and the FDIC have previously axed the requirement from their rule books.
The US Federal Reserve has removed reputational risk from its examination programs in supervising US banks. Following the elimination of the factor, the US Fed has joined the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) to ease requirements for banks to dabble in cryptocurrency offerings.
Federal Reserve Ends Reputational Risk Factor In Bank Examinations
According to a press release, the Federal Reserve Board has introduced sweeping changes to its rules on bank supervision. Per the latest update, the Fed will remove reputational risk as a component of examination programs for banks.
The central bank has begun eliminating all references relating to “reputation and reputational risks” in its manuals and handbooks. Going forward, the Federal Reserve reveals that it will substitute the reputational risks references with “specific discussion of financial risks.”
Critics like Senator Lummis criticized the Fed for its stance on banking supervision, particularly on cryptocurrencies. Leaning on the reputational risks clause, critics note that financial institutions opted not to offer cryptocurrency services to customers.
The statement reveals that the Fed will begin training examiners to effect the new changes, hinting at cross-agency collaboration for seamless operations. The OCC and the FDIC have previously eliminated the use of reputational risk from their examination criteria, triggering the beginning of the end of the institutionalized debanking of crypto firms.
Crypto Prices Rally Following The Move
Minutes after the announcement, cryptocurrency prices began rallying, buoyed by a change of stance by the US Fed. Bitcoin has risen by 5% over the last day while Ethereum is up 10%, inching toward the $2,500 mark.
CoinGecko data indicates that Cardano, Solana, BNB, and XRP are racking up impressive gains as market sentiment grows bullish. The global cryptocurrency market capitalization has surged by nearly 3% to settle at $3.3 trillion.
Yesterday, the crypto market crashed following US airstrikes on Iran’s nuclear installations, triggering over $1.1 billion in liquidations. The market resurgence is tied to the possibility of a flurry of financial institutions unveiling cryptocurrency products for consumers in the US after the Fed changed its stance on supervision
Last week, the US Fed dampened investors’ optimism with its decision not to cut interest rates. However, Federal Reserve Governor Christopher Waller says a Fed rate cut may happen in July, potentially triggering a rally for digital assets.
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