Reputation Risk Is Changing, but Governance Still Matters 

For financial institutions, reputation has long been closely tied to customer confidence, operational stability, and long-term success. However, recent regulatory developments are changing how federal banking agencies evaluate reputation risk during examinations. 

While regulators are moving away from treating reputation risk as a separate supervisory concern, the importance of strong governance has not diminished. For bank leadership and boards of directors, understanding this distinction is essential to maintaining effective oversight and managing risk. 

Understanding the Shift in Regulatory Expectations 

Federal banking regulators have taken significant steps to remove reputation risk from their supervisory frameworks. 

In 2025, the Office of the Comptroller of the Currency (OCC) and Federal Reserve announced changes eliminating reputation risk as a component of their examination programs. In April 2026, the OCC and Federal Deposit Insurance Corporation (FDIC) finalized a rule prohibiting supervisory criticism or adverse action based on reputation risk. 

These changes reflect a shift toward evaluating more clearly defined financial and operational risks rather than relying on subjective concerns about public perception. 

Importantly, the changes do not eliminate expectations surrounding safety and soundness, regulatory compliance, or effective risk management. Financial institutions remain responsible for understanding the risks associated with their operations, customers, and business relationships. 

Why Governance Still Plays a Critical Role 

Although reputation risk is receiving different treatment from regulators, the underlying issues that affect an institution’s reputation have not disappeared. 

Cybersecurity incidents, operational disruptions, compliance failures, and weaknesses in internal controls can still create significant financial consequences and damage customer confidence. 

Strong governance helps institutions identify these concerns, establish accountability, and maintain appropriate oversight. 

For boards and management teams, this includes understanding how risks are communicated, whether reporting provides meaningful information, and how decisions are documented. 

Clear governance practices also support consistent decision-making, particularly when evaluating customer relationships, third-party arrangements, and emerging operational concerns. 

Maintaining Effective Oversight in a Changing Environment 

As supervisory expectations evolve, financial institutions may need to reconsider how they discuss and document risk. 

Broad references to reputation risk may offer less clarity than identifying the specific financial, operational, or compliance concerns underlying a decision. 

For example, a third-party service disruption may raise questions about operational resilience, cybersecurity, or customer service. Understanding these underlying issues provides a clearer basis for management discussions and board oversight. 

Consistent internal reporting, communication between departments, and awareness of changing regulatory expectations remain important components of an effective governance framework. 

For community banks and smaller institutions, where leadership often balances multiple responsibilities, maintaining that visibility can be especially challenging. 

Strong Governance Remains a Constant 

Regulatory approaches to reputation risk may be changing, but the need for sound judgment, accountability, and effective oversight remains. 

Financial institutions that understand these changes are better equipped to evaluate their governance practices and communicate risk clearly across the organization. 

At Brady Martz, our financial institution professionals understand the challenges banks face as regulatory expectations evolve. If your institution has questions about changing supervisory priorities, governance practices, or internal controls, connect with a Brady Martz professional to discuss what these developments may mean for your organization.