Senate Banking Committee Chair Tim Scott has introduced a bill aimed at preventing federal regulators from using reputational risk as a factor in bank supervision.
The move comes in response to concerns from the crypto industry, which has accused government agencies of cutting them off from the financial system.
Scott, a South Carolina Republican, said the legislation would “curtail the weaponization of federal banking agencies by eliminating the ability for regulators to use reputational risk as a component of supervision.”
He added:
As Chairman of the Senate Banking Committee, I have made addressing debanking a top priority. This discriminatory and un-American practice should concern everyone, which is why I’ve led my colleagues in working to find tangible solutions.
The Financial Integrity and Regulation Management Act (FIRM Act) has the backing of several Republican senators, including Mike Crapo, Cynthia Lummis, Katie Britt, Bernie Moreno, Thom Tillis, John Kennedy, and Bill Hagerty.
Under the Federal Reserve’s definition, reputational risk refers to the “potential that negative publicity regarding an institution’s business practices, whether true or not, will cause a decline in the customer base, costly litigation, or revenue reductions.”
Scott argued that regulators have abused this concept to target businesses based on political bias.
The bill seeks to eliminate all references to reputational risk in regulatory supervision and prevent its use in future rules or guidance.
According to a Senate Banking Committee spokesperson, the proposal has support from the American Bankers Association, the Blockchain Association, and the Bank Policy Institute.
Crypto debanking concerns
The legislation follows mounting complaints from the digital asset industry, which claims that crypto firms face significant hurdles in securing and maintaining bank accounts in the US.
The issue has gained traction among lawmakers as crypto companies allege that banks are under regulatory pressure to distance themselves from the sector.
Nic Carter, co-founder of Castle Island Ventures, has described the situation as “Operation Choke Point 2.0,” drawing parallels to a 2013 US Department of Justice initiative that sought to restrict banking access for high-risk industries, including payday lenders and firearm dealers.
Bank executives have expressed concerns about the risks associated with serving crypto firms, with JPMorgan Chase CEO Jamie Dimon warning that banks could face millions in fines if compliance missteps occur.
Several Democrats, including Senator Elizabeth Warren, have stated that regulatory scrutiny of digital assets was justified following the collapse of major firms, fraud charges against industry leaders, frequent hacks of digital asset platforms, and overall market volatility.
Meanwhile, Federal Reserve Chair Jerome Powell recently acknowledged the need to re-evaluate current policies.
“I will commit to working with you on that, we do try to avoid excessive burden,” Powell said during a February Senate Banking Committee hearing. “Look, I think it’s fair to take a fresh look, frankly, on debanking.”
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