Senate Bill Would Eliminate Reputational Risk as Measure of Safety and Soundness
Senate Banking Committee Chairman Tim Scott, R-S.C., has introduced a bill that would stop federal banking agencies from using reputational risk as a measure to determine regulated financial institutions’ safety and soundness.
Scott was joined on the bill by all other Republicans on the Senate Banking Committee, he said in a Thursday (March 6) press release.
The Financial Integrity and Regulation Management Act, or FIRM Act, aims to combat debanking, Scott said in the release.
“It’s clear that federal regulators have abused reputational risk by carrying out a political agenda against federally legal businesses,” Scott said. “This legislation, which eliminates all references to reputational risk in regulatory supervision, is the first step in ending debanking once and for all.”
A one-pager about the FIRM Act issued by Scott said federal banking agencies commonly use the term “reputational risk” to refer to the potential impact that negative publicity or public opinion could have on a financial institution.
The federal banking agencies have incorporated reputational risk through informal guidance as a component to determine institutions’ supervisory ratings, though it is not required by statute, according to the one-pager.
“This bill is narrowly tailored so that removal of this subjective factor does not affect quantitative supervisory measures (e.g. concentration risk, liquidity risk, etc.),” the one-pager said.
The term “debanking” often refers to the practice of financial institutions closing or restricting access to accounts or refusing services to certain individuals, organizations or industries, often because of regulatory concerns, perceived risks, compliance issues or reputational considerations, PYMNTS reported in December.
FinTech and crypto investor Marc Andreessen kicked off a firestorm at that time by alleging on Joe Rogan’s podcast that those two sectors were being fundamentally debanked by U.S. financial institutions.
Elon Musk posted on X, with a link to the clip of the podcast, “Did you know that 30 tech founders were secretly debanked?”
It was reported in February that Scott led a roundtable with banking executives to discuss the issue of debanking.
JPMorgan Chase CEO Jamie Dimon said on this way to the meeting, per a report by Bloomberg, the bank doesn’t debank people for their religious or political affiliations but that there are issues relating to anti-money laundering (AML) and financial crime rules that “cause a lot of people to be pushed out of the system.”
The post Senate Bill Would Eliminate Reputational Risk as Measure of Safety and Soundness appeared first on PYMNTS.com.