OCC Will Cease Examining Banks for Reputational Risk

The OCC announced that it will cease examining banks for reputational risk and issued a bulletin stating that it is in the process of removing references to reputational risk from various handbooks and guidance documents.

Reputational risk refers to the potential that perceived negative publicity regarding an institution’s business practices or the entities with which it does business could cause a decline in its customer base, trigger litigation, or cause other losses in revenue.  The OCC’s announcement stated that it did not want to appear to be casting judgment on how a bank’s activity may fare with public opinion.  Instead, it will focus on more transparent and objective risk areas.  Notwithstanding this change, regulated entities must still adhere to prudent risk management practices, operate in a safe and sound manner, and comply with applicable laws and regulations.

Some of the other prudential banking regulators have also indicated that they will stop examining banks for reputational risk.  The FDIC noted in a letter to the Senate Banking Committee that it plans to remove the concept of reputational risk from its regulatory approach and is working on new rulemaking to address this.  The Chair of the Federal Reserve separately stated in a Senate committee hearing that his agency was committed to revising its supervision manuals to remove reputational risk as a consideration.