FDIC Moves to Limit ‘Reputation Risk’ Banking Restrictions

According to a notice released Thursday, the FDIC’s board of directors has placed on its agenda a draft rule that would restrict regulators from citing ‘reputation risk’ when assessing banks. Although the agenda item makes no direct reference to cryptocurrency, the issue has long hovered over the digital asset industry, with companies frequently complaining about being quietly cut off from U.S. banking services. Acting chair Travis Hill has repeatedly argued that the label of reputation risk has been used as a pretext to block certain banking services, including transfers between customers and digital asset exchanges.

The proposed rule represents a significant departure from previous regulatory approaches. For years, financial institutions have cited reputation risk concerns when limiting or terminating relationships with cryptocurrency firms, creating what industry participants describe as an ‘orchestrated push’ against digital assets. The regulatory conversation builds on political attention from earlier this year, suggesting a coordinated effort to address what critics call regulatory overreach in the banking sector.

The FDIC’s move follows substantial political pressure from the highest levels of government. In August, US President Donald Trump signed an executive order on ‘guaranteeing free banking,’ warning that regulators could exploit vague notions of reputation risk to justify debanking practices. The order directed regulators to review all banks they supervise for any current or past practices that would effectively bar users based on political as well as religious beliefs, and levy fines or other disciplinary measures as needed.

This executive action marked a turning point in the regulatory landscape, forcing agencies like the FDIC to reexamine their approach to banking supervision. The timing of the FDIC’s proposed rule suggests coordination with the White House’s broader financial policy objectives, particularly around ensuring access to banking services for legitimate businesses regardless of industry sector.

The regulatory shift comes after documents obtained through a Freedom of Information Act request revealed FDIC officials had advised banks to halt all crypto-related activities in 2022. These documents provided concrete evidence supporting long-standing industry complaints about systematic exclusion from traditional financial services. The revelation that FDIC officials were actively discouraging banking relationships with cryptocurrency firms contradicted public statements about regulatory neutrality.

For years before President Trump’s executive order, companies in the digital asset sector had complained that they were being quietly cut off from U.S. banks without clear justification. The FOIA documents gave substance to these claims, showing that what some industry participants described as an ‘orchestrated push’ against cryptocurrency had official backing from within regulatory agencies. This background explains the urgency behind the current rulemaking effort.

The proposed rule could fundamentally reshape banking access for digital asset companies that have struggled to maintain stable relationships with traditional financial institutions. By restricting regulators’ ability to cite vague ‘reputation risk’ concerns, the FDIC would remove a key barrier that has prevented many banks from serving cryptocurrency exchanges, Bitcoin businesses, and other digital asset firms. This change could open significant banking channels for companies like Nexo and other cryptocurrency platforms.

The regulatory shift also comes amid broader global developments in digital finance, including Australia’s exploration of a central bank digital currency (CBDC) for payments and tokenization. While the U.S. regulatory approach has often been more cautious than international counterparts, the FDIC’s move suggests a potential alignment with global trends toward greater integration between traditional finance and digital assets. The outcome of this rulemaking could determine whether the United States maintains its competitive position in the evolving digital economy.