US bank regulators narrow enforcement focus to financial risks, slashing actions by more than half

The three most powerful banking regulators in the US have collectively decided that less is more. The Federal Reserve, the Office of the Comptroller of the Currency, and the FDIC have all pivoted toward a supervision model that zeroes in on “material financial risks” to bank safety and soundness, while deliberately pulling back from enforcement actions tied to procedural hiccups and reputational concerns.

The numbers tell a stark story. Public enforcement actions across these three agencies dropped from over 500 in 2015 to just 245 by 2025. At the Federal Reserve specifically, the decline has been somewhere between 48% and 58% in recent comparison periods.

What the new framework actually looks like

The shift accelerated dramatically under the Trump administration. Fed Vice Chair for Supervision Michelle W. Bowman has been a driving force behind the realignment, pushing for examination processes that target genuine threats to bank stability rather than casting a wide net over every compliance checkbox.

By 2026, the Fed introduced what it calls an “abnormal probability of abnormal harm” standard for enforcement actions related to unsafe or unsound practices. Regulators now need to clear a higher bar before bringing the hammer down on a bank.

Reputational risk has been formally eliminated from the supervisory playbook through a series of policy rollouts between 2025 and 2026. The agencies have also narrowed the scope of supervisory findings, with Matters Requiring Attention now limited to material financial concerns.

Why the crypto industry is paying attention

The elimination of reputational risk as a supervisory consideration is arguably the single most important regulatory development for crypto-adjacent banking since the sector began trying to work with traditional financial institutions. For years, crypto companies have complained that regulators used the vague concept of “reputational risk” to discourage banks from serving digital asset firms, a practice critics dubbed “Operation Choke Point 2.0.”

Under the old framework, a bank examiner could flag a bank’s relationship with a crypto exchange or stablecoin issuer not because it posed a credit or liquidity risk, but because the association might embarrass the bank or the broader financial system. With reputational risk off the table, banks theoretically have fewer reasons to refuse service to legally operating crypto businesses.

The risk of pulling back too far

The 2023 banking stress that claimed Silicon Valley Bank, Signature Bank, and First Republic happened under a regulatory environment that was already trending toward lighter supervision for certain categories of banks. The new supervisory approach emerged in part as a response to criticism that examiners during that period placed excessive attention on procedural issues rather than adequately addressing accumulating financial risks.

The new “abnormal probability of abnormal harm” standard also raises questions about who defines “abnormal.” Standards that rely on subjective thresholds can be interpreted permissively in good times and tightened retroactively after a crisis, creating uncertainty for the banks they’re supposed to help.

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