Federal Reserve Proposes Rule to Combat Crypto Debanking and Reputation Risk
# Fed Proposes Rule to Address Crypto Debanking by Eliminating 'Reputation Risk'
The Federal Reserve has put forward a significant proposal aimed at tackling the contentious issue of crypto debanking. This initiative seeks to eradicate the concept of 'reputation risk' that has been used by financial institutions to justify the removal of clients associated with cryptocurrency or alternative businesses.
According to Vice Chair for Supervision Michelle W, there have been “troubling cases of debanking — where supervisors use concerns about reputation risk to pressure financial institutions to debank customers because of their political views, religious beliefs or involvement in disfavored but lawful businesses.” This situation has raised alarm bells regarding the fairness and transparency of banking practices, particularly impacting those engaged in the cryptocurrency sector.
The new rule will codify the removal of reputation risk from the supervisory programs of the Federal Reserve Board. A recent memo to the Board of Governors emphasized the move, highlighting the need to prevent institutions from "encouraging or compelling" debanking based on subjective or politically motivated criteria.
Furthermore, the proposal asserts that issuers of payment stablecoins will be permitted, part of a broader aim to create a more inclusive banking environment for those involved in digital currencies. This decision is poised to reshape the landscape for crypto-related businesses, granting them greater protection and support within the financial system.
This report is for informational purposes only and is not financial advice.