ICBA supports proposal to bar agency use of reputation risk

ICBA expressed support for a proposed rule to prohibit the use of reputation risk by regulatory agencies and urged the agencies to finalize it promptly.  
 
Details: In a letter to the OCC and FDIC, ICBA said: 

• The elimination of reputation risk from supervisory frameworks will improve the objectivity, consistency, and predictability of bank supervision while reducing unnecessary compliance burdens on community banks. 

• Credit risk, liquidity risk, and internal rate of return are quantified through established metrics, but reputation risk lacks any consistent definition or measurable criteria. 

• By codifying these prohibitions in regulation rather than relying on guidance alone, the agencies will provide durable legal protections that will remain in effect across future administrations and leadership changes. 

Background: The FDIC and OCC in October proposed rules to prohibit the use of reputation risk by regulators and to revise the supervisory framework for “unsafe or unsound” banking practices.  
 
ICBA View: In a national news release following the release of the proposal, ICBA commended the agencies and said prioritizing material financial risks facilitates a tailored regulatory framework that allows community banks to meet the needs of their communities.