OCC drops reputational risk from exams amid debanking debate

Andrew Harrer/Bloomberg

The Office of the Comptroller of the Currency said Thursday that it would stop assessing reputational risk in bank examinations, the latest move in the Trump administration's effort to curb what it sees as unjustified and politically motivated banking restrictions under President Joe Biden.

The agency said these changes align with its mission and supervisory goals by reinforcing strong risk management practices, ensuring fair treatment of customers, and maintaining compliance with laws and regulations.

"The OCC's examination process has always been rooted in ensuring appropriate risk management processes for bank activities, not casting judgment on how a particular activity may fare with public opinion," acting Comptroller of the Currency Rodney E. Hood said. "The OCC has never used reputation risk as a catch-all justification for supervisory action. Focusing future examination activities on more transparent risk areas improves public confidence in the OCC's supervisory process and makes clear that the OCC has not and does not make business decisions for banks."

The agency emphasized that banks must continue exercising diligence and prudent risk management in all other areas, with updates to its public documents expected in the coming weeks. The move aligns with President Donald Trump's push to curb "debanking," a practice critics liken to Operation Chokepoint 2.0 — an Obama-era policy discouraging banks from serving the crypto industry.

In a recent video address at the World Economic Forum in Davos, the president accused the CEOs of Bank of America and JPMorgan Chase of denying services to conservatives, echoing broader Republican complaints about "woke capitalism." Both banks denied making decisions based on politics, emphasizing compliance with government regulations.

Hood — just days before the regulatory change — condemned "debanking," arguing that lawful businesses, including crypto firms, should have access to financial services. Speaking at a Consumer Bankers Association conference, Hood insisted the OCC does not dictate account closures and vowed to uphold fair access to accounts for various industries.

The scope and causes of "debanking" — as well as how to precisely define it — remain unclear, as no standardized reporting exists on how often banks close accounts or why. While some argue the practice targets digital asset firms and conservative-aligned businesses, regulators like the Federal Reserve's Michael Barr insist there's no evidence of politically motivated debanking.

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Bank industry representatives responded to the OCC action positively, saying bank exams should be transparent and grounded in objective legal standards and calling it a step toward restoring trust between regulators and the firms they oversee.

"We support the OCC's announcement today and believe it is one action among many necessary steps to restore fairness to bank supervision," said Greg Baer, Bank Policy Institute president and CEO. "This marks meaningful progress in refocusing oversight on material financial risk, rather than reputational risk, operational risk, corporate governance, vendor management and other matters that do not pose a material threat to safety and soundness."

The OCC's move is the first in what could be a series of similar moves at the federal prudential regulatory agencies. Treasury Secretary Scott Bessent — whom Hood reports to — urged all federal prudential regulators to eliminate reputational risk as a supervisory criterion at a meeting of the Financial Stability Oversight Council on Thursday, according to a readout of the meeting.  

The move also follows concerns from Republican lawmakers, who have echoed the idea that reputational risk assessments have led to debanking. Earlier this month, the Senate Banking Committee advanced legislation from Chair Tim Scott, R-S.C., to prohibit regulators from using reputational risk in financial supervision.