In a monumental decision, the U.S. Federal Reserve has announced that it will end the use of “reputational risk” in the supervisory oversight of banks. The measure was widely criticized by the crypto industry and was seen as a tool for debanking and discrimination against crypto firms.

The policy change is addressing the long-standing grievances from crypto companies and organizations. The firms claimed that the banks were pressured to sever ties with crypto companies due to concerns over reputational fallout rather than certain financial risk. This practice gained popularity under the label “Operation Chokepoint 2.0,” during which over 30 technology and crypto-related companies reportedly lost banking access.

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Federal Reserve Makes Bank Oversight Easier  

The Federal Reserve Board released a statement on Monday that it has started the process to remove references to reputational risk from all of its internal supervision materials. The removed material will be replaced with a more targeted language that is more focused on identifiable financial risks. The Board also confirmed plans to train examiners and coordinate with other federal regulatory bodies to apply the policy consistently across the banking sector.

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Even though these changes are made, the banks are urged to uphold a robust risk management system and comply with all relevant laws. The Federal Reserve Board clarified that this doesn’t restrict institutions from considering reputational factors internally, and it simply removes those considerations from federal supervisory assessments.

The decision marks a significant shift in regulatory tone. Senator Cynthia Lummis, a vocal crypto advocate, called it a long-overdue correction. “Reputation risk was used to assassinate American Bitcoin and digital asset businesses,” she said, hailing the decision as a step forward while warning that more reform is needed.

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Banking groups echoed this sentiment. Rob Nichols, President of the American Bankers Association, praised the move for improving transparency. “Banks should base decisions on risk and market dynamics — not regulators’ subjective views,” he said.

However, critics argue the change could weaken oversight by sidelining non-financial concerns such as ethical lapses, environmental controversies, or social issues that still carry economic consequences. The decision follows broader regulatory change in the U.S. Earlier this year, the Office of the Comptroller of the Currency confirmed banks could trade and outsource crypto services. In March, the Federal Deposit Insurance Corporation also lifted prior restrictions on crypto activity for institutions under its supervision.