Following Committee Passage of Scott Bill to Eliminate Reputational Risk, Regulators Take Action
Washington, D.C. – After the Senate Banking Committee successfully advanced Chairman Tim Scott’s (R-S.C.) legislation to eliminate reputational risk as a component of bank supervision, federal financial regulators are taking action to remove this arbitrary regulatory tool.
On March 20, during the Financial Stability Oversight Council Meeting, Secretary of the Department of the Treasury Scott Bessent voiced his support for banking agencies’ removing reputational risk as a basis for supervisory criticism. Following the meeting, the Office of the Comptroller of the Currency (OCC) announced that it will no longer examine its regulated institutions for reputation risk and is removing references to reputation risk from its Comptroller’s Handbook booklets and guidance issuances. The Federal Deposit Insurance Corporation also said it was working to eliminate reputational risk in its supervision of financial institutions.
“Debanking federally legal businesses and law-abiding citizens is un-American, but unfortunately, we’ve seen federal banking regulators abuse ‘reputational risk’ to carry out political agendas and force financial institutions to cut off access to financial services for Americans. Fortunately, the Trump administration has taken action to end the use of this subjective tool, and the FIRM Act – which advanced out of the Senate Banking Committee – will eliminate all references to reputational risk in regulatory supervision,” said Chairman Tim Scott.
BACKGROUND:
In his first legislative hearing of the year, Chairman Scott hosted witnesses who shared firsthand their experiences being debanked. At the hearing, Chairman Scott called out the Biden administration’s financial regulators who exploited their power and pressured financial institutions to cut off services to individuals and businesses and pledged that the committee will work to find solutions to address this issue. During the committee’s hearing with Federal Reserve Chair Jerome Powell, Chairman Scott again highlighted the issue of debanking federally legal businesses and law-abiding citizens, and Chair Powell committed to working with the committee to end this practice. Chairman Scott also led a roundtable discussion with Senate Banking Republicans and leaders from the nation’s largest consumer banks focused on debanking and other regulatory issues facing the financial institutions.
At each of these events, Chairman Scott heard testimony on how federal banking regulators use a subjective concept called “reputational risk” to regulate banks based on the subjective view of negative publicity, which provides cover for the agencies to implement their own political agenda unrelated to the safety and soundness of a bank.
As a result, Chairman Scott led his fellow Banking Committee Republicans in introducing legislation to curtail the weaponization of federal banking agencies by eliminating the ability for regulators to use reputational risk as a component of supervision. The American Bankers Association, the Bank Policy Institute, the Financial Services Forum, the Blockchain Association, and the Online Lenders Alliance have all endorsed the bill. Organizations representing industries that have been debanked, including the ATM Industry Association, the INFiN Alliance, the National Pawnbrokers Association, and the National Shooting Sports Foundation, as well as a coalition of 26 state financial officers, also voiced their support.
Chairman Scott’s Financial Integrity and Regulation Management (FIRM) Act, advanced out of the Senate Banking Committee during the first legislative markup of the 119th Congress.
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