Sponsors (13)
The bill trades reduced subjective supervisory discretion and lower reporting burdens (especially for smaller banks) and greater definitional clarity for regulators, in exchange for potentially weakening regulators' tools to address non‑quantitative risks—raising the chance of delayed detection of misconduct, community harms, or broader systemic costs.
Banks, credit unions, and their lawful customers will face clearer limits on using subjective "reputational risk" in supervision, reducing chances of regulatory pressure that can cut off legal customers and making supervisory outcomes more predictable.
Insured credit unions and other depository institutions are explicitly included and covered-entity definitions are clarified, providing consistent application of the law across banks and credit unions and reducing legal uncertainty.
Community and smaller banks (and the customers they serve) will have lower reporting and compliance burdens—e.g., short-form call reports for CBLR-eligible banks and tailored rules—freeing staff to focus on local customers and reducing operational costs.
Taxpayers, consumers, and the stability of the banking system could face higher risk because limiting supervisory consideration of reputational risk may blunt regulators' ability to detect or deter fraud, money laundering, weak governance, or other conduct that first presents through public reputation issues.
Depositors, low-income communities, and consumers could suffer reduced protections and delayed detection of emerging problems if decreased supervisory tools and less frequent reporting limit visibility into risky behavior or deteriorating bank conditions.
A broad statutory definition of "reputational risk" (including publicity "whether true or not") could prompt preemptive regulatory or legal actions, increase litigation and compliance burdens for institutions, and create uncertainty.
Based on analysis of 7 sections of legislative text.
Bans federal banking agencies from using or referencing “reputational risk” in supervision, requires removal of such references, mandates tailored rulemaking, short-form call reports for some community banks, and multiple reports to Congress.
Introduced March 6, 2025 by Tim Scott · Last progress March 6, 2025
Prohibits federal banking regulators from using “reputational risk” (or similar language) when supervising banks and credit unions, requires agencies to delete such references from guidance, and bars supervisory or enforcement actions based on reputational risk. It also requires regulators to tailor rules to institutions’ risk profiles, provide shorter call reports for community bank leverage ratio–eligible banks in two quarters, review and revise certain recent regulations, and report to Congress on implementation.