Fed drops ‘reputational risk’ rules US banks crypto oversight changes spark debate

The Federal Reserve has quietly dismantled a controversial banking rule that cryptocurrency advocates claim was weaponized to cut off digital asset firms from financial services—a major shift in US banks crypto oversight changes that could reshape the industry’s access to mainstream finance.

In a policy reversal with far-reaching implications, the Fed ordered its examiners to stop using “reputational risk” assessments when supervising banks—a practice critics compared to the regulatory “assassination” of crypto businesses during 2023’s banking crisis.

Operation Chokepoint 2.0 fallout drives policy shift

The decision is seen as a stark reversal from 2023, when the collapse of Silvergate Bank, Signature Bank, and Silicon Valley Bank triggered US banks crypto oversight changes that saw over 30 tech and digital asset firms lose banking access. Many blamed the Fed’s reputational risk framework—a subjective measure of how banking relationships might damage a lender’s image—for creating a shadow ban now dubbed “Operation Chokepoint 2.0.”

“These policies assassinated American Bitcoin and digital asset businesses,” Senator Cynthia Lummis (R-WY) told Cointelegraph, calling the Fed’s move “a win” for financial innovation.

What the new rules mean for crypto banking

Under the revised guidelines:

• • Examiners must now focus solely on concrete financial risks rather than subjective reputation concerns

  • Banks retain autonomy to assess reputational risk internally

  • The Fed will retrain staff to enforce consistent standards

“This change makes supervision more transparent,” said American Bankers Association CEO Rob Nichols, whose group lobbied for the US banks crypto oversight changes. “Decisions should be based on risk management, not regulators’ personal views.”

Critics warn of deregulation risks

Not all observers welcomed the pivot. Some policy analysts argue that the removal of reputational risk assessments could:

• Enable banks to ignore environmental, social, and governance (ESG) concerns

• Reduce transparency around high-risk clients

• Potentially expose banks to hidden liabilities

“The 2008 crisis proved reputational risks often become financial risks,” warned former FDIC chair Sheila Bair. “Dropping this tool is shortsighted.”

Broader trend of crypto regulatory relief

The Fed’s move aligns with other recent US banks crypto oversight changes:

• In May, the OCC greenlit banks to facilitate crypto trades

• The FDIC confirmed in March that lenders no longer need pre-approval for crypto activities

“This is about recalibrating, not deregulating,” Fed Vice Chair Michael Barr emphasized. “Banks must still manage all risks—we’re just being specific about what that means.”

What comes next for crypto banking?

Industry analysts suggest the US banks crypto oversight changes could:

1. Help crypto firms secure payment rails and custody solutions

2. Reduce reliance on unstable “crypto-friendly” niche banks

3. Accelerate institutional adoption of blockchain finance

As the dust settles, one thing is clear: The rules governing how traditional finance interacts with digital assets are evolving rapidly—and the full impact of these US banks crypto oversight changes may take years to materialize.

With reporting from Washington and New York.