Agencies Issue Proposal to Prohibit Use of Reputation Risk by Regulators; FDIC Removes References to Reputation Risk from Examination and Other Materials

Summary:

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) (the agencies) issued a joint notice of proposed rulemaking that would codify the removal of reputation risk from their supervisory programs.

In conjunction with the proposed rule, the FDIC is announcing the removal of references to reputation risk from its guidance, policy documents, and examination manuals to memorialize the agency’s instruction to examiners not to use reputation risk as a basis for supervisory criticism.

Statement of Applicability: The contents of, and material referenced in, this FIL apply to all FDIC-supervised financial institutions.

Highlights:

Proposed Rule

• The proposed rule would prohibit the agencies from criticizing, formally or informally, or taking adverse action against an institution or any employee of an institution on the basis of reputation risk.
• The proposed rule would also prohibit the agencies from requiring, instructing, or encouraging an institution to close customer accounts or take other actions on the basis of a person or entity’s political, social, cultural, or religious views or beliefs, constitutionally protected speech, or solely on the basis of politically disfavored but lawful business activities perceived to present reputation risk.
• The proposed rule would not impose requirements or obligations on supervised institutions.
• Comments on the proposed rule are due 60 days after the date of publication in the Federal Register.

FDIC Examination Manuals and Other Documents

• References to reputation risk were removed from the following FDIC examination manuals and other documents:
  • Risk Management Manual of Examination Policies;
  • Application Procedures Manual;
  • Trust Examination Manual;
  • Applying For Deposit Insurance – A Handbook for Organizers; and
  • Consumer Compliance Examination Manual.
• The FDIC will continue to work with the other federal banking agencies to remove references to reputation risk from interagency materials.