Sen. Tim Scott Introduces Bill to End 'Reputational Risk' in Banking Regulations

The proposed FIRM Act aims to curb regulators' use of reputational risk as a factor in supervisory decisions, citing concerns over political bias and debanking practices.

• Senate Banking Committee Chair Tim Scott unveiled the Financial Integrity and Regulation Management (FIRM) Act to remove 'reputational risk' from federal banking oversight criteria.
• The bill prohibits federal agencies like the FDIC, Federal Reserve, and OCC from using reputational risk in supervisory ratings or creating new rules based on it.
• Scott and fellow Republicans argue that reputational risk has been misused to target politically disfavored businesses, including cryptocurrency firms and conservative groups.
• The legislation is a response to claims of 'debanking,' where banks allegedly close accounts of legal businesses based on regulatory pressure or perceived risk.
• Supporters of the bill, including industry trade groups, assert it will restore fairness and transparency in banking regulations, while critics highlight potential risks to consumer protection and financial stability.

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