A Silent Barrier Finally Falls
In a rare shift favoring the crypto sector, the Federal Reserve has removed “reputational risk” from its bank supervision criteria. The announcement, made Monday in Washington, marks the end of a long-standing but vague metric that gave regulators discretion to block banks from engaging with industries they viewed as controversial—particularly crypto. From now on, bank examiners must focus solely on measurable risks like liquidity, credit exposure, and operational security.
The Fed confirmed that it is deleting all references to reputational risk from its manuals and official guidance. That change not only removes a major obstacle for crypto adoption within the banking system but also strips examiners of the ability to act on subjective concerns, such as bad optics or political controversy.
Crypto’s Quiet Battle Against Optics-Based Censorship
For years, crypto firms have found themselves sidelined, not because of financial instability, but because of how partnerships “looked” to regulators. The now-scrapped reputational filter allowed examiners to block perfectly legal services if they simply didn’t like how it would be perceived by the public or lawmakers. As a result, many banks cut ties with crypto businesses, citing compliance risks that were more political than practical.
This new policy aligns the Fed with the FDIC and the Office of the Comptroller of the Currency, both of which had already distanced themselves from using reputational risk as a determining factor. Banks are still expected to manage PR fallout if it arises, but they’ll no longer face regulatory consequences for engaging in controversial—but lawful—ventures.
Trump Turns Up the Heat on Powell
The timing of the Fed’s decision is notable. It comes amid increased political pressure from President Donald Trump, who is publicly attacking Fed Chair Jerome Powell and demanding drastic rate cuts. On Friday, Trump called Powell a “Total and Complete Moron” on social media, days after a tense private Oval Office meeting. The president is pushing for interest rates to be slashed from 4.3% down to as low as 1%, largely to ease the burden of servicing the U.S. debt, now exceeding $36 trillion.
Powell pushed back last week, saying:
He’s set to appear before Congress on Tuesday, where both the reputational risk reversal and Trump’s meddling are likely to come under fire from lawmakers.
Internal Fed Divide Over Rates Emerges
Inside the Federal Reserve, a split is emerging. Since the last monetary meeting, only two Fed officials have signaled support for a rate cut in July—both appointed by Trump. Notably, Fed Governor Michelle Bowman, typically hawkish on inflation, shocked markets by stating she’s now more worried about rising unemployment than price hikes.
This pivot reflects growing political and economic tension within the central bank. Commerce Secretary Howard Lutnick has also downplayed inflation fears linked to Trump’s trade tariffs, echoing the administration’s narrative that interest rates should fall quickly.
Powell’s Position Under Threat
Though Powell’s term ends in early 2026, Trump is exploring ways to undermine him before then. After the Supreme Court blocked Trump’s request to fire federal officials at will, the president is now reportedly considering announcing Powell’s replacement early, creating a sort of “shadow chair” to erode Powell’s influence in real time. But this tactic could backfire. A replacement viewed as a Trump loyalist may lose credibility with markets and face internal resistance.
Until then, Trump seems content to wage the fight in public, while the Fed tries to maintain an image of institutional independence. With reputational risk now gone, crypto firms may see more friendly banking options open up—but the larger battle over monetary policy is only heating up.
