S875-119

What This Bill Does

The FIRM Act rejects reputational risk as a supervisory basis for depository institutions and insured credit unions. It says federal banking agencies should focus on safety and soundness, not subjective negative publicity, and cites Operation Choke Point concerns. The bill defines federal banking agencies to include the OCC, Federal Reserve Board, FDIC, NCUA, and CFPB; requires those agencies to remove reputational-risk references from guidance, rules, examination manuals, and similar documents; prohibits examinations, supervisory expectations, ratings, criticisms, data collections, and enforcement actions based on reputational risk; requires implementation reports to Congress within 180 days; and in the reported text requires federal financial institutions regulatory agencies to tailor regulatory actions to the risk profile and business model of covered institutions and document that tailoring in proposed and final rules.

Who Benefits and How

Depository institutions benefit because regulators could not use reputational risk as a stand-alone supervisory factor. Insured credit unions benefit from the same removal of reputational-risk supervision and tailored rulemaking duties. Federally legal businesses that have struggled to obtain banking services benefit if banks face less regulatory pressure to avoid controversial customers for reputational reasons. Community banks benefit from required consideration of risk profile, business model, cost, staffing burden, and aggregate regulatory impact. Congressional banking committees benefit from implementation reports describing policy changes by each banking agency.

Who Bears the Burden and How

The OCC, Federal Reserve Board, FDIC, NCUA, and CFPB must revise guidance, rules, examination manuals, and supervisory processes. Bank examiners must stop using reputational risk in exams, ratings, supervisory communications, data collections, and enforcement actions. Federal financial institutions regulatory agencies must document regulatory tailoring in proposed and final rulemakings. Consumer protection and financial-risk advocates may lose a supervisory tool for pressuring banks over controversial but legal customer relationships. Agency policy offices must review recent regulations and apply the new risk-profile and business-model tailoring requirements.

Key Provisions

• Requires federal banking agencies to remove reputational-risk references from guidance, rules, examination manuals, and similar documents.
• Prohibits rules, exams, ratings, supervisory criticisms, data collections, and enforcement actions based on reputational risk.
• Requires each banking agency to submit a 180-day implementation report to the Senate Banking and House Financial Services committees.
• Directs financial regulators to tailor new regulatory actions to institution risk profiles and business models.
• Requires regulators to document tailoring in proposed and final rules and review recent regulations for the same treatment.