Fed Drops Reputational Risk to Open Door for Banks to Serve Bitcoin Firms

The Federal Reserve has eliminated "reputational risk"  as a factor in its supervisory process in a move set to reshape how US banks engage with the cryptocurrency industry.

The removal of reputational risk considerations from bank supervision, which was announced by Vice Chair for Supervision Michelle Bowman, aims to remove longstanding obstacles that prompted banks to avoid serving bitcoin and digital asset businesses.

As of late June, the Fed ceased penalizing banks for working with legally compliant crypto firms, clarifying that decisions like which customers to serve now rest with bank management, not regulators. Bowman stressed that the industry has often faced unnecessary friction due to confusing and inconsistent rules.

Bowman also introduced a new, simpler regulatory framework guided by the four key principles of regulatory certainty, tailored rules for different use cases, strong consumer protection, and promoting US competitiveness in financial technology.

In addition, oversight of banks' digital-asset activities will now be folded into standard supervision, rather than handled via a separate “novel activities” program launched in 2023, and Bowman encouraged a more collaborative dialogue between the Fed and the industry on future policy development.

These steps mark a clear shift away from the Fed’s traditionally cautious stance toward innovation, hinting that banks may soon find it easier to offer crypto-related services without regulatory hesitation.