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The Office of the Comptroller of the Currency (OCC) announced on Thursday that it will no longer conduct examinations based on reputational risk for banks. This new directive aims to focus on risk management processes stemming from banks’ activities. The statement signals an end to the past evaluations that reflected the negative public perception of the sector.
OCC and Bank Assessments
With the guideline announced on March 7, the OCC stated that banks could utilize their own risk mitigation tools. This regulation seeks to replace subjective assessments in bank reviews with more objective criteria. Specifically, it has been reported that banks’ operations will now be assessed based on their risk management practices.
Congress has initiated efforts to investigate potential discriminatory banking practices during the Biden Administration. In hearings held by the Senate Banking Committee and the Financial Services Subcommittee, challenges faced by businesses in the crypto sector concerning access to banking services were highlighted. Nathan McCauley, CEO of Anchorage Digital, pointed out that even well-managed firms are being placed at a disadvantage by banks.
Banks and Crypto
The OCC indicated that the evaluation process of banks’ internal risk models will become more transparent and objective, affirming that past assessments based on reputational risk will no longer be used. The regulation aims to eliminate criticisms based on subjective perceptions within the banking system.
Officials shared their statements. Rodney E. Hood commented, “Our review process focuses on ensuring the appropriateness of banks’ risk management processes.” Kevin Wysocki from Anchorage Digital also noted that removing reputational risk would contribute to a fairer assessment of the sector.
Following FTX’s bankruptcy in November 2022, regulatory bodies highlighted the increasing risks in the crypto sector. Institutions like the Federal Reserve Board and the Federal Deposit Insurance Corporation expressed the capability to intervene by closely monitoring banks’ risk factors. These steps are seen as part of efforts to maintain stability in the banking system. Furthermore, it appears that the new administration has finally put an end to efforts forcing banks to distance themselves from crypto.
The OCC’s new initiative is viewed as a significant step towards adopting objective criteria in bank evaluations. The regulation aims to enhance banks’ risk management strategies and increase transparency. The expectation for equity and fair access in the sector constitutes the fundamental purpose of this new regulation. Many crypto companies struggled to find banks willing to work with them following the FTX collapse.
