U.S. Senator Tim Scott (R-S.C.) has introduced new legislation aimed at tackling the rising issue of debanking practices. The proposed Financial Integrity and Regulation Management Act, or FIRM Act, seeks to eliminate the use of reputational risk as a metric for regulating financial institutions.
The FIRM Act addresses concerns about how reputational risk has been employed by federal banking agencies to evaluate the safety and soundness of financial institutions. The bill aims to remove reputational risk from the supervisory ratings system entirely, ensuring that financial institutions are not assessed based on political considerations.
The legislation also prevents federal banking agencies from creating rules or guidelines that incorporate reputational risk as a factor. Under the bill, agencies would be required to report to Congress on their progress in eliminating reputational risk from their regulatory processes.
Senator Scott expressed his concerns about the potential misuse of reputational risk to target specific businesses and individuals, particularly those in politically sensitive sectors. This initiative is framed as a push to prevent the politicization of banking regulations and protect access to banking services for all businesses, regardless of their political or social affiliations.
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