On February 23, the Federal Reserve Board of Governors proposed a rule to formally eliminate “reputation risk” as a factor in bank supervision — a move widely seen as addressing concerns tied to what critics call Operation Chokepoint 2.0.
What the proposal would change
Under the proposal, Federal Reserve examiners would be required to focus strictly on measurable financial risks such as:
- Credit risk
- Liquidity risk
- Capital adequacy
- Legal and regulatory compliance
They would no longer factor in subjective concerns about a bank’s public image or potential political controversy when evaluating institutions.
The rule will be open for a 60-day public comment period after publication in the Federal Register.
Why this matters
Vice Chair for Supervision Michelle W. Bowman said the Fed has heard “troubling cases of debanking” where reputational concerns were allegedly used to pressure banks into cutting off customers based on:
- Political views
- Religious beliefs
- Lawful but controversial business activities
She stated that such discrimination has no place in the Fed’s supervisory framework.
The “Operation Chokepoint 2.0” controversy
The term refers to allegations that regulators informally pressured banks to distance themselves from certain lawful industries — particularly cryptocurrency firms — by citing vague reputational risks.
The name echoes Operation Choke Point, a 2013 United States Department of Justice initiative that targeted banks serving “high-risk” but legal businesses such as payday lenders and firearm dealers.
In recent years, digital asset firms have argued that similar supervisory pressure made it difficult to open or maintain bank accounts, despite operating legally.
Political reaction
Supporters of the change say it could reduce so-called “debanking” pressures.
Senator Cynthia Lummis, a prominent advocate for digital assets, welcomed the proposal and said she hopes it will help position the United States as a global hub for crypto innovation.
The proposal also aligns with broader political efforts, including actions during the Trump administration, aimed at curbing informal regulatory pressure on lawful but politically sensitive sectors.
Broader implications
If finalized, the rule could:
- Make bank supervision more objective and predictable
- Reduce uncertainty for cryptocurrency firms and other lawful industries
- Limit examiners’ discretion in using non-financial considerations
Supporters argue the shift promotes regulatory fairness across sectors, not just for crypto. Critics, however, may question whether removing reputation risk could limit supervisors’ ability to manage emerging or politically sensitive threats.
The outcome of the public comment process will determine whether the change becomes formal policy.
