Monthly LRA Update: September 2025

REGULATORY DEVELOPMENTS

Executive Order Directing Banking Regulators to Remove Use of Reputational Risk from Examining Process

On August 7 President Trump issued an executive order (“Guaranteeing Fair Banking for All Americans”). Among other points, the order makes the claim that banking regulators have at times used influence over regulated banks to direct and/or encourage “politized or unlawful debanking activities” by directing banks to minimize involvement with certain organizations and individuals “based on factors other than individualized, objective, risk-based standards.”

In particular, the order includes the following directive concerning the use of reputation risk in supervisory activity (emphasis added):

Within 180 days of the date of this order, each appropriate Federal banking regulator shall, to the greatest extent permitted by law, remove the use of reputation risk or equivalent concepts that could result in politicized or unlawful debanking, as well as any other considerations that could be used to engage in such debanking, from their guidance documents, manuals, and other materials (other than existing regulations or other materials requiring notice-and-comment rulemaking) used to regulate or examine financial institutions over which they have jurisdiction. The removal of such concepts shall be made clear by each appropriate Federal banking regulator through formal guidance to their examiners. The Federal banking regulators shall also consider rescinding or amending existing regulations, consistent with applicable law, to eliminate or amend any regulations that could result in politicized or unlawful debanking and to ensure that any regulated firm’s or individual’s reputation is considered for regulatory, supervisory, banking, or enforcement purposes solely to the extent necessary to reach a reasonable and apolitical risk-based assessment.

BOLI is subject to comprehensive supervisory guidance under OCC Bulletin 2004-56. While OCC 2004-56 includes guidance on reputation risk, the OCC had previously advised that it would no longer examine for reputation risk. It is unclear if the OCC will take up any specific action regarding OCC 2004-56 following this executive order.