Banks win right to hide from regulators' reputational scrutiny
S. 875 — FIRM Act · Filed by Tim Scott (R-SC) · 12 cosponsors · Introduced Mar 6, 2025 · Reported out
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What it does
This bill prohibits federal banking regulators from considering 'reputational risk'—the potential for negative publicity to harm a bank's reputation or customer base—when examining and supervising depository institutions. It also requires regulators to tailor rules to match each bank's risk profile and business model, and mandates reporting on how they do so. The bill's stated purpose is to prevent regulators from using subjective reputational concerns as cover for politically motivated enforcement, citing the 2018 'Operation Choke Point' as an example.
Why we flagged it
The bill's core mechanism is to strip a supervisory tool (reputational risk assessment) from federal banking regulators and mandate regulatory tailoring to reduce compliance burden on banks. While framed as anti-politicization, it functions as a deregulatory measure that benefits depository institutions by narrowing the scope of examination.
- Section 6(2)–(6) mandates broad regulatory tailoring and cost-benefit analysis across all banking rules, unrelated to reputational risk removal. This is a separate deregulatory agenda.
- Section 6 (short-form call reports, modernization report) adds new reporting obligations on regulators, substantively distinct from the reputational risk prohibition.
What the text implies
- Removing reputational risk as a supervisory metric may reduce regulators' ability to identify or address systemic risks tied to customer confidence, bank runs, or contagion—a core safety-and-soundness concern that the bill claims to protect.
- The bill's definition of reputational risk ('whether true or not') suggests it may block regulators from considering even factually accurate negative publicity about a bank's practices, potentially shielding banks from accountability for actual misconduct.
The full analysis lists 5 implications of this text.
Who stands to gain
depository institutions (banks, credit unions); financial service providers serving high-risk or controversial industries (payday lenders, firearms; community banks (lighter tailored regulation)