Regulatory Prohibition on the Use of "Reputation Risk" from the OCC and FDIC

On April 7, 2026, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) jointly adopted a prohibiting federal banking regulators from using “reputation risk” as a basis for supervisory criticism or adverse action taken against an institution, including the imposition of informal or formal enforcement actions. The rule will become effective June 9, 2026, sixty days after publication in the Federal Register.

The final rule represents a significant development in federal banking supervision, formally codifying the agencies’ decision to eliminate reputation risk from their supervisory frameworks. For many years, reputation risk appeared in examination manuals and supervisory practices as a discretionary concept referring to the possibility that a bank’s activities could negatively affect public perception. The OCC and FDIC ultimately concluded that reputation risk introduces excessive subjectivity into supervision and lacks a clear connection to traditional safety-and-soundness objectives.

The regulation defines reputation risk broadly as the risk—regardless of label—that an institution’s actions or inactions could negatively affect public perception for reasons not clearly or directly related to its financial or operational condition. Under the final rule, examiners are expressly prohibited from criticizing institutions, downgrading supervisory ratings, denying applications, imposing heightened requirements, or taking any other adverse supervisory action on the basis of reputation risk. The agencies note that bias (whether from the head of an agency or from an individual examiner) is not a permissible basis for agency action.

The rule also constrains regulators’ abilities to indirectly influence bank decision-making. The OCC and FDIC may not require, instruct, or encourage an institution to terminate, refuse, or modify customer or third-party relationships because those relationships are perceived to create reputational concerns. This prohibition applies equally to formal and informal supervisory communications.

Citing the concerns expressed in Executive Order 14331, Guaranteeing Fair Banking for All Americans, the final rule provides explicit protection of lawful customer relationships connected to politically or socially sensitive activities. The regulation prohibits examiners from encouraging account closures or service denials based on a customer’s political, social, cultural, or religious views or beliefs; constitutionally protected speech; or participation in politically disfavored but lawful business activities when such encouragement is justified by reputation risk concerns.

Differences Between the Proposed Rule and the Final Rule

The final rule expands on the notice of proposed rulemaking issued on October 30, 2025.

Notably, the final rule addresses commentary regarding the interplay between “operational risk” and “reputation risk” by updating the definition of “reputation risk” to expressly refer to an institution’s “operational condition” as well as its financial condition, providing more leeway for regulators to negatively assess bank conduct in an examination even if the conduct is not directly related to an institution’s financial health. In the final rule, the agencies comment that they “...agree that operational risk is a significant concern for institutions. Public perception that an institution could be susceptible to a breakdown in the provision of services due to operational issues such as a cyberattack or a natural disaster could have a direct impact on customer’s willingness to do business with an institution and thus on the institution’s financial solvency.”

Additionally, while the proposal focused on removing reputation risk as an examination factor, the final rule broadens the prohibition to include informal supervisory pressure, clearer limitations on examiner conduct and added specificity regarding politically sensitive customer relationships.

The agencies also clarified in the final rule that it imposes no new compliance obligations on banks themselves. Instead, the regulation is directed entirely at limiting the conduct of examiners and supervisory personnel. This clarification was added in response to comments expressing concern that the proposal might alter banks’ internal risk-management responsibilities.

By embedding these restrictions directly into regulation rather than guidance documents, the OCC and FDIC aim to provide greater certainty and transparency in supervision. As the rule takes effect in June 2026, banks should monitor how examiners apply these new limitations during examinations and supervisory interactions, particularly in areas involving sensitive customer relationships or controversial business lines.

If you have any questions regarding this final regulation or these developments, please contact any of the authors or the Manatt professional with whom you work.

In June 2025, the Federal Reserve Board (FRB) announced that reputation risk would no longer be a component of examination of banks. In February 2026, the FRB on a proposal to codify that removal.

90 Fed. Reg. 38925 (Aug. 12, 2025).

91 Fed. Reg. at 18286 (April 10, 2026).