On April 7, the FDIC and the OCC jointly issued a final rule codifying the removal of “reputation risk” from their supervisory oversight reviews and restricting examiners from taking certain actions based on perceived reputational concerns. The rule becomes effective 60 days after publication in the Federal Register.

The final rule bars the agencies from criticizing institutions, formally or informally, or taking adverse action against them on the basis of reputation risk. It also broadens earlier agency actions removing reputational-risk references from manuals and guidance by placing those limitations directly into regulation. 

Key provisions include:

• Prohibits supervisory criticism based on reputation risk. The rule bars the OCC and FDIC from issuing negative feedback, downgrades, licensing denials, heightened requirements, or other adverse action against an institution based on reputation risk.
• Restricts agency pressure involving customer or third-party relationships. The rule prohibits the agencies from requiring, instructing, or encouraging institutions to terminate, refuse, initiate, or modify business relationships on the basis of reputation risk.
• Addresses account closures tied to protected views or lawful but disfavored activities. The rule also prohibits the agencies from encouraging institutions to take action against a person or entity based on political, social, cultural, or religious views or beliefs, constitutionally protected speech, or solely because of involvement in politically disfavored but lawful business activities perceived to present reputation risk.

Putting It Into Practice: This final rule continues the broader federal shift away from reputation-risk supervisory oversight and follows earlier agency moves on the same issue (previously discussed here and here). For banks and other supervised institutions, the rule should bring greater clarity around what examiners may and may not cite in supervisory discussions, especially where customer relationships or lawful but sensitive business lines are involved. Institutions should watch how the agencies apply the rule in examinations and related supervisory communications, and adjust internal compliance and examination-response practices as needed.