Banks Shouldn’t Have to Answer to Reputation Cops: Editorial

Federal regulators have a hard enough job overseeing banks’ financial risks. They shouldn’t have to safeguard their reputations as well. A proposed rule that would remove the nebulous concept of “reputation risk” from their supervisory duties is long overdue.

Banks have always needed to heed public opinion, but it wasn’t until the 1990s that regulators started to formally incorporate reputation risk into the hazards that needed explicit oversight. Although initially limited, the concept soon infiltrated nearly every facet of regulation; the Federal Reserve’s examination manual mentioned “reputation” or “reputational” 160 times.

It’s a good moment for a rethink. ...