FDIC And OCC Finalize Rule Removing Reputation Risk From Most Supervisory Actions

On April 7, the Federal Deposit Insurance Corporation ("FDIC") and the Office of the Comptroller of the Currency ("OCC") approved a final rule that prohibits regulators from using "reputation risk" as a standalone basis for supervisory or enforcement actions. This final rule is adopted largely as proposed in October.

Below, we detail the core components of the rule and what it means for your institution's risk management and client onboarding strategies.

The Final Rule explicitly forbids examiners from citing "reputation risk" as the sole justification for a formal enforcement action or a downgrade in a bank's supervisory rating. The staff memo to the FDIC Board noted that the concept of reputation risk "increases subjectivity in supervision without adding material value from a safety and soundness perspective." The staff said that the rule is aimed at: