US Fed Moves to End ‘Reputation Risk’ Rule Amid Crypto Debanking Concerns

TheNewsCryptoPublished on 2026-02-24Last updated on 2026-02-24

Abstract

The US Federal Reserve is moving to codify a rule that would eliminate "reputation risk" as a factor in banking supervision, a practice blamed for widespread crypto debanking. Announced on February 23, the proposal seeks public feedback for two months. Fed Vice Chair Michelle Bowman stated that supervisors have been improperly pressuring banks to close accounts based on customers' political views, religious beliefs, or involvement in lawful but disfavored businesses like crypto, calling such discrimination unlawful. Senator Lummis and industry figures praised the move, viewing it as ending "Operation Chokepoint 2.0," a term describing alleged government efforts to cut off crypto firms from banking services.

The US Federal Reserve is looking for codifying a rule eliminating “reputation risk” from banking supervision, which some have condemned for a wave of crypto debanking in the past few years.

In the beginning, the Fed started making changes in June 2025 and publicised that it had directed its supervisors to stop pressuring banks to close client accounts over reputation risk, stating banks can only make decisions on clients based on financial risk management.

On February 23, the Fed announced through a press release that it is asking for feedback on a proposal to turn this into law. The Fed has given a two-month deadline for submitting comments.

Michelle Bowman, the vice chair for supervision, mentioned that we have heard troubling cases of debanking, where supervisors use concerns regarding reputation risk to pressure financial institutions to debank customers due to their political views, religious beliefs, or participation in disfavoured but lawful businesses.

She further went on, adding that discrimination via financial institutions on these bases is unlawful and doesn’t have a role in the Federal Reserve’s supervisory substructure. The same day, Lummis posted on X praising the move and added that it is not the Fed’s role to play both judge and jury for banking digital asset firms.

She wrote, “Happy to see this significant step to permanently eliminate ‘reputation risk’ from Fed policy and put Operation Chokepoint 2.0 to rest so America can be the digital asset capital of the world.”

Alex Thorn, the head of firmwide research of Galaxy Digital, also applauded the move, mentioning via X on Feb 23 that “chokepoint 2.0 rollback carries on.”

The term ‘Operation Chokepoint 2.0’ is used by a lot of members from the crypto industry to describe what they felt was a coordinated effort by the Joe Biden-guided US government and banking sector to prevent crypto companies from leveraging traditional banking services.

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Related Questions

QWhat is the US Federal Reserve proposing to eliminate from banking supervision?

AThe US Federal Reserve is proposing to eliminate 'reputation risk' from banking supervision.

QWhy has the 'reputation risk' rule been criticized in recent years?

AIt has been criticized for causing a wave of crypto debanking, where banks close accounts based on perceived reputation risk rather than financial risk.

QWhat did Vice Chair Michelle Bowman say about debanking practices?

AShe stated that supervisors have pressured financial institutions to debank customers due to political views, religious beliefs, or participation in disfavored but lawful businesses, calling such discrimination unlawful.

QWhat is 'Operation Chokepoint 2.0' as referred to by the crypto industry?

AIt is a term used by the crypto industry to describe a perceived coordinated effort by the US government and banking sector to prevent crypto companies from accessing traditional banking services.

QHow did Senator Lummis and Galaxy Digital's Alex Thorn react to the Fed's proposal?

ABoth praised the move, with Lummis calling it a step to make America the digital asset capital of the world, and Thorn noting the 'chokepoint 2.0 rollback' continues.

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