On June 23, the Federal Reserve Board announced that reputational risk will no longer be a component of its bank-examination program. The same day, the Board released a revised edition of its Guidelines for Rating Risk Management at State Member Banks and Bank Holding Companies, which deletes every reference to reputational risk.

The announcement states that examiners will now focus on specific, quantifiable categories of financial, operational, legal, and compliance risk. To ensure uniform implementation, the Federal Reserve will train examination staff, update supervisory manuals, and coordinate with other federal banking agencies to promote consistent practices.

The updated SR 95-51 substitutes discussions of “material financial risks” for all reputational references. Going forward, examination reports will not cite or downgrade banks for perception-based concerns; supervisory ratings will hinge solely on measurable risk metrics. Banks may still track reputational considerations internally, but those metrics will no longer influence federal examination outcomes.

Putting It Into Practice: The Fed’s move, following similar actions by the OCC and FDIC confirms a coordinated shift toward objective, metrics-driven supervision. With the Fed, OCC and FDIC all removing reputational risk from examination ratings, institutions examined by multiple regulators can expect more consistent procedures across the prudential regulators.