II
Calendar No. 32
119THCONGRESS
1
STSESSION S. 875
To curtail the political weaponization of Federal banking agencies by elimi-
nating reputational risk as a component of the supervision of depository
institutions.
IN THE SENATE OF THE UNITED STATES
MARCH6, 2025
Mr. S
COTTof South Carolina (for himself, Mr. CRAPO, Mr. ROUNDS, Mr.
T
ILLIS, Mr. KENNEDY, Mr. HAGERTY, Ms. LUMMIS, Mrs. BRITT, Mr.
R
ICKETTS, Mr. CRAMER, Mr. MORENO, Mr. MCCORMICK, and Mr.
B
ANKS) introduced the following bill; which was read twice and referred
to the Committee on Banking, Housing, and Urban Affairs
M
ARCH18, 2025
Reported under authority of the order of the Senate of March 14, 2025, by
Mr. S
COTTof South Carolina, with an amendment
[Strike out all after the enacting clause and insert the part printed in italic]
A BILL
To curtail the political weaponization of Federal banking
agencies by eliminating reputational risk as a component
of the supervision of depository institutions.
Be it enacted by the Senate and House of Representa-1
tives of the United States of America in Congress assembled, 2
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SECTION1.SHORTTITLE. 1
ThisActmaybecitedasthe‘‘FinancialIntegrityand 2
RegulationManagementAct’’orthe‘‘FIRMAct’’. 3
SEC.2.FINDINGS;PURPOSES. 4
(a)FINDINGS.—Congressfindsthat— 5
(1)theprimaryobjectiveoffinancialregulation 6
andsupervisionbytheFederalbankingagenciesis 7
topromotesafetyandsoundnessofdepositoryinsti-8
tutions; 9
(2)allfederallylegalbusinessesandlaw-abid-10
ingcitizensregardlessofpoliticalideologyshould 11
haveequalopportunitytoobtainfinancialservices 12
andshouldnotfaceunlawfuldiscriminationinob-13
tainingsuchservices; 14
(3)financialserviceprovidersareprivateenti-15
tiesentitledtoprovideservicestowhichevercus-16
tomerstheysochoose,providedthatthosedecisions 17
donotviolatethelaw; 18
(4)financialserviceprovidersshouldstriveto 19
ensurethatallbusinessdecisionsarebasedonfac-20
torsfreefromunlawfulprejudiceorpoliticalinflu-21
ence; 22
(5)theuseofreputationalriskinsupervisory 23
frameworksencouragesFederalbankingagenciesto 24
regulatedepositoryinstitutionsbasedonthesubjec-25
tiveviewofnegativepublicityandprovidescoverfor 26
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theagenciestoimplementtheirownpoliticalagenda 1
unrelatedtothesafetyandsoundnessofadeposi-2
toryinstitution; 3
(6)Federalbankingagencieshaveinfactused 4
reputationalrisktolimitaccessoffederallylegal 5
businessesandlaw-abidingcitizenstofinancialserv-6
icesin2018whentheFederalDepositInsurance 7
Corporationacknowledgedthattheagencyused 8
reputationalriskreviewstolimitaccesstofinancial 9
servicesbycertainindustries,commonlyknownas 10
‘‘OperationChokePoint’’; 11
(7)reputationalriskdoesnotappearinany 12
statuteandisanunnecessaryandimproperuseof 13
supervisoryauthoritythatdoesnotcontributetothe 14
safetyandsoundnessofthefinancialsystem. 15
SEC.3.DEFINITIONS. 16
InthisAct: 17
(1)DEPOSITORYINSTITUTION.—Theterm‘‘de-18
positoryinstitution’’— 19
(A)hasthemeaninggiventheterminsec-20
tion3oftheFederalDepositInsuranceAct(12 21
U.S.C.1813);and 22
(B)includesaninsuredcreditunion. 23
(2)FEDERAL BANKING AGENCY.—Theterm 24
‘‘Federalbankingagency’’— 25
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(A)hasthemeaninggiventheterminsec-1
tion3oftheFederalDepositInsuranceAct(12 2
U.S.C.1813);and 3
(B)includes— 4
(i)theNationalCreditUnionAdmin-5
istration;and 6
(ii)theBureauofConsumerFinancial 7
Protection. 8
(3)INSUREDCREDITUNION.—Theterm‘‘in-9
suredcreditunion’’hasthemeaninggiventheterm 10
insection101oftheFederalCreditUnionAct(12 11
U.S.C.1752). 12
(4)REPUTATIONAL RISK.—The term 13
‘‘reputationalrisk’’meansthepotentialthatnega-14
tivepublicityornegativepublicopinionregardingan 15
institution’sbusinesspractices,whethertrueornot, 16
willcauseadeclineinconfidenceintheinstitution 17
oradeclineinthecustomerbase,costlylitigation, 18
orrevenuereductionsorotherwiseadverselyimpact 19
thedepositoryinstitution. 20
SEC.4.REMOVAL OFREPUTATIONAL RISKASACONSIDER-21
ATIONINTHESUPERVISION OFDEPOSITORY 22
INSTITUTIONS. 23
EachFederalbankingagencyshallremovefromany 24
guidance,rule,examinationmanual,orsimilardocument 25
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establishedbytheagencyanyreferencetoreputational 1
risk,oranytermsubstantiallysimilar,regardingthesu-2
pervisionofdepositoryinstitutionssuchthatreputational 3
risk,oranytermsubstantiallysimilar,isnolongertaken 4
intoconsiderationbytheFederalbankingagencywhen 5
examiningandsupervisingadepositoryinstitution. 6
SEC.5.PROHIBITION. 7
NoFederalbankingagencymayengageinanyactiv-8
ityconcerningorrelatedtotheregulation,supervision,or 9
examination,ofthereputationalrisk,oranytermsub-10
stantiallysimilar,orthemanagementthereof,ofadeposi-11
toryinstitution,including— 12
(1)establishinganyrule,regulation,require-13
ment,standard,orsupervisoryexpectationcon-14
cerningorrelatedtothereputationalrisk,orany 15
termsubstantiallysimilar,orthemanagementthere-16
of,ofadepositoryinstitutionwhetherbindingor 17
not; 18
(2)conductinganyexamination,assessment, 19
datacollection,orothersupervisoryexercisecon-20
cerningorrelatedtoreputationalrisk,oranyterm 21
substantiallysimilar,orthemanagementthereof,of 22
adepositoryinstitution; 23
(3)issuinganyexaminationfinding,supervisory 24
criticism,orothersupervisoryorexaminationcom-25
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municationconcerningorrelatedtoreputational 1
risk,oranytermsubstantiallysimilar,ortheman-2
agementthereof,ofadepositoryinstitution; 3
(4)makinganysupervisoryratingsdecisionor 4
determinationthatisbased,inwholeorinpart,on 5
anymatterconcerningorrelatedtoreputational 6
risk,oranytermsubstantiallysimilar,ortheman-7
agementthereof,ofadepositoryinstitution;and 8
(5)takinganyformalorinformalenforcement 9
actionthatisbased,inwholeorinpart,onany 10
matterconcerningorrelatedtoreputationalrisk,or 11
anytermsubstantiallysimilar,orthemanagement 12
thereof,ofadepositoryinstitution. 13
SEC.6.REPORTS. 14
Notlaterthan180daysafterthedateofenactment 15
ofthisAct,eachFederalbankingagencyshallsubmitto 16
theCommitteeonBanking,Housing,andUrbanAffairs 17
oftheSenateandtheCommitteeonFinancialServices 18
oftheHouseofRepresentativesareportthat— 19
(1)confirmsimplementationofthisAct;and 20
(2)describesanychangesmadetointernalpoli-21
ciesasaresultofthisAct. 22
SECTION 1. SHORT TITLE. 23
This Act may be cited as the ‘‘Financial Integrity and 24
Regulation Management Act’’ or the ‘‘FIRM Act’’. 25
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SEC. 2. FINDINGS. 1
Congress finds that— 2
(1) the primary objective of financial regulation 3
and supervision by the Federal banking agencies is to 4
promote the safety and soundness of depository insti-5
tutions; 6
(2) all federally legal businesses and law-abiding 7
citizens regardless of political ideology should have 8
equal opportunity to obtain financial services and 9
should not face unlawful discrimination in obtaining 10
such services; 11
(3) financial service providers are private enti-12
ties entitled to provide services to whichever customers 13
they so choose, provided that those decisions do not 14
violate the law; 15
(4) financial service providers should strive to 16
ensure that all business decisions are based on factors 17
free from unlawful prejudice or political influence; 18
(5) the use of reputational risk in supervisory 19
frameworks encourages Federal banking agencies to 20
regulate depository institutions based on the subjective 21
view of negative publicity and provides cover for the 22
agencies to implement their own political agenda un-23
related to the safety and soundness of a depository in-24
stitution; 25
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(6) Federal banking agencies have in fact used 1
reputational risk to limit access of federally legal 2
businesses and law-abiding citizens to financial serv-3
ices in 2018 when the Federal Deposit Insurance Cor-4
poration acknowledged that the agency used 5
reputational risk reviews to limit access to financial 6
services by certain industries, commonly known as 7
‘‘Operation Choke Point’’; and 8
(7) reputational risk does not appear in any 9
statute and is an unnecessary and improper use of 10
supervisory authority that does not contribute to the 11
safety and soundness of the financial system. 12
SEC. 3. DEFINITIONS. 13
In this Act: 14
(1) D
EPOSITORY INSTITUTION.—The term ‘‘de-15
pository institution’’— 16
(A) has the meaning given the term in sec-17
tion 3 of the Federal Deposit Insurance Act (12 18
U.S.C. 1813); and 19
(B) includes an insured credit union. 20
(2) F
EDERAL BANKING AGENCY .—The term 21
‘‘Federal banking agency’’— 22
(A) has the meaning given the term in sec-23
tion 3 of the Federal Deposit Insurance Act (12 24
U.S.C. 1813); and 25
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(B) includes— 1
(i) the National Credit Union Admin-2
istration; and 3
(ii) the Bureau of Consumer Financial 4
Protection. 5
(3) I
NSURED CREDIT UNION.—The term ‘‘insured 6
credit union’’ has the meaning given the term in sec-7
tion 101 of the Federal Credit Union Act (12 U.S.C. 8
1752). 9
(4) R
EPUTATIONAL RISK .—The term 10
‘‘reputational risk’’ means the potential that negative 11
publicity or negative public opinion regarding an in-12
stitution’s business practices, whether true or not, will 13
cause a decline in confidence in the institution or a 14
decline in the customer base, costly litigation, or rev-15
enue reductions or otherwise adversely impact the de-16
pository institution. 17
SEC. 4. REMOVAL OF REPUTATIONAL RISK AS A CONSIDER-18
ATION IN THE SUPERVISION OF DEPOSITORY 19
INSTITUTIONS. 20
Each Federal banking agency shall remove from any 21
guidance, rule, examination manual, or similar document 22
established by the agency any reference to reputational risk, 23
or any term substantially similar, regarding the super-24
vision of depository institutions such that reputational risk, 25
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or any term substantially similar, is no longer taken into 1
consideration by the Federal banking agency when exam-2
ining and supervising a depository institution. 3
SEC. 5. PROHIBITION. 4
No Federal banking agency may engage in any activ-5
ity concerning or related to the regulation, supervision, or 6
examination, of the reputational risk, or any term substan-7
tially similar, or the management thereof, of a depository 8
institution, including by— 9
(1) establishing any rule, regulation, require-10
ment, standard, or supervisory expectation concerning 11
or related to the reputational risk, or any term sub-12
stantially similar, or the management thereof, of a 13
depository institution whether binding or not; 14
(2) conducting any examination, assessment, 15
data collection, or other supervisory exercise con-16
cerning or related to reputational risk, or any term 17
substantially similar, or the management thereof, of a 18
depository institution; 19
(3) issuing any examination finding, super-20
visory criticism, or other supervisory or examination 21
communication concerning or related to reputational 22
risk, or any term substantially similar, or the man-23
agement thereof, of a depository institution; 24
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(4) making any supervisory ratings decision or 1
determination that is based, in whole or in part, on 2
any matter concerning or related to reputational risk, 3
or any term substantially similar, or the management 4
thereof, of a depository institution; and 5
(5) taking any formal or informal enforcement 6
action that is based, in whole or in part, on any mat-7
ter concerning or related to reputational risk, or any 8
term substantially similar, or the management there-9
of, of a depository institution. 10
SEC. 6. TAKING ACCOUNT OF INSTITUTIONS WITH LOW 11
OPERATIONAL RISK. 12
(a) T
AILORINGREGULATION TO BUSINESSMODEL 13
ANDRISK.— 14
(1) D
EFINITIONS.—In this subsection— 15
(A) the term ‘‘Federal financial institutions 16
regulatory agency’’ means the Office of the 17
Comptroller of the Currency, the Board of Gov-18
ernors of the Federal Reserve System, the Federal 19
Deposit Insurance Corporation, the National 20
Credit Union Administration, and the Bureau of 21
Consumer Financial Protection; and 22
(B) the term ‘‘regulatory action’’— 23
(i) means any proposed, interim, or 24
final rule or regulation; and 25
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(ii) does not include any action taken 1
by a Federal financial institutions regu-2
latory agency that is solely applicable to an 3
individual institution, including an en-4
forcement action or order. 5
(2) C
ONSIDERATION AND TAILORING .—For any 6
regulatory action occurring after the date of enact-7
ment of this Act, each Federal financial institutions 8
regulatory agency shall— 9
(A) take into consideration the risk profile 10
and business models of each type of institution 11
or class of institutions subject to the regulatory 12
action; and 13
(B) tailor the regulatory action applicable 14
to an institution, or type of institution, in a 15
manner that limits the regulatory impact, in-16
cluding cost, human resource allocation, and 17
other burdens, on the institution or type of insti-18
tution as is appropriate for the risk profile and 19
business model involved. 20
(3) F
ACTORS TO CONSIDER.—In carrying out the 21
requirements of paragraph (2), each Federal financial 22
institutions regulatory agency shall consider— 23
(A) the aggregate impact of all applicable 24
regulatory actions on the ability of institutions 25
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to flexibly serve their customers and local mar-1
kets after the date of enactment of this Act; 2
(B) the potential impact that efforts to im-3
plement the applicable regulatory action and 4
third-party service provider actions may work to 5
undercut efforts to tailor the regulatory action 6
described in paragraph (2)(B); and 7
(C) the statutory provision authorizing the 8
applicable regulatory action, the congressional 9
intent with respect to the statutory provision, 10
and the underlying policy objectives of the regu-11
latory action. 12
(4) N
OTICE OF PROPOSED AND FINAL RULE -13
MAKING.—Each Federal financial institutions regu-14
latory agency shall disclose and document in every 15
notice of proposed rulemaking and in every final 16
rulemaking for a regulatory action how the agency 17
has applied paragraphs (2) and (3). 18
(5) L
IMITED LOOK-BACK APPLICATION.— 19
(A) I
N GENERAL.—Each Federal financial 20
institutions regulatory agency shall— 21
(i) conduct a review of all regulations 22
issued in final form pursuant to statutes 23
enacted during the period beginning on the 24
date that is 7 years before the date on which 25
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this Act is introduced in the Senate and 1
ending on the date of enactment of this Act; 2
and 3
(ii) apply the requirements of this sub-4
section to the regulations described in clause 5
(i). 6
(B) R
EVISION.—Any regulation revised 7
under subparagraph (A) shall be revised not 8
later than 3 years after the date of enactment of 9
this Act. 10
(6) R
EPORTS TO CONGRESS .—Not later than 1 11
year after the date of enactment of this Act, and an-12
nually thereafter, each Federal financial institutions 13
regulatory agency shall submit to the Committee on 14
Banking, Housing, and Urban Affairs of the Senate 15
and the Committee on Financial Services of the 16
House of Representatives a report on the specific ac-17
tions taken to tailor the regulatory actions of the Fed-18
eral financial institutions regulatory agency pursu-19
ant to the requirements of this subsection. 20
(b) S
HORT-FORMCALLREPORTS FORALLBANKSELI-21
GIBLE FOR THECOMMUNITYBANKLEVERAGERATIO.—The 22
appropriate Federal banking agencies, as defined in section 23
3 of the Federal Deposit Insurance Act (12 U.S.C. 1813), 24
shall promulgate regulations establishing a reduced report-25
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ing requirement for all banks eligible for the Community 1
Bank Leverage Ratio, as defined in section 201(a) of the 2
Economic Growth, Regulatory Relief, and Consumer Pro-3
tection Act (12 U.S.C. 5371 note), when making the first 4
and third report of condition of a year, as required by sec-5
tion 7(a) of the Federal Deposit Insurance Act (12 U.S.C. 6
1817(a)). 7
(c) R
EPORT TOCONGRESS ONMODERNIZATION OFSU-8
PERVISION.—Not later than 18 months after the date of en-9
actment of this Act, the appropriate Federal banking agen-10
cies, as defined in section 3 of the Federal Deposit Insur-11
ance Act (12 U.S.C. 1813), in consultation with State bank 12
supervisors, shall submit to the Committee on Banking, 13
Housing, and Urban Affairs of the Senate and the Com-14
mittee on Financial Services of the House of Representa-15
tives a report on the modernization of bank supervision, 16
including the following factors: 17
(1) Changing bank business models. 18
(2) Examiner workforce and training. 19
(3) The structure of supervisory activities within 20
banking agencies. 21
(4) Improving bank-supervisor communication 22
and collaboration. 23
(5) The use of supervisory technology. 24
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(6) Supervisory factors uniquely applicable to 1
community banks. 2
(7) Changes in statutes necessary to achieve more 3
effective supervision. 4
SEC. 7. REPORTS. 5
Not later than 180 days after the date of enactment 6
of this Act, each Federal banking agency shall submit to 7
the Committee on Banking, Housing, and Urban Affairs 8
of the Senate and the Committee on Financial Services of 9
the House of Representatives a report that— 10
(1) confirms implementation of this Act; and 11
(2) describes any changes made to internal poli-12
cies as a result of this Act. 13
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32
119
TH
CONGRESS
1
ST
S
ESSION
S. 875 A BILL
To curtail the political weaponization of Federal
banking agencies by eliminating reputational risk
as a component of the supervision of depository
institutions.
M
ARCH
18, 2025
Reported with an amendment
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