When the Federal Reserve Board announced in a Monday (June 23) press release that it would no longer include “reputational risk” in its formal bank examinations and supervision programs, most consumers in the United States likely barely noticed.
However, in the corridors of compliance offices, FinTech startups, financial institutions and cryptocurrency-native firms, the reverberations were immediate.
On Capitol Hill, momentum is accelerating behind two legislative efforts: the GENIUS Act to bring stablecoins under federal oversight, which has passed the Senate and moved onto the House; and another which was unveiled by lawmakers Tuesday (June 24) and intends to create a framework for the development of legislation for digital assets.
The market structure bill seeks to clarify the roles of the Securities and Exchange Commission and the Commodity Futures Trading Commission regarding regulating digital assets, delineate which tokens qualify as securities or commodities, and create a unified registration regime for crypto exchanges. Its framework could open the floodgates for Wall Street to enter crypto in a structured and compliant manner. That includes not just banks, but asset managers, broker-dealers and pension funds.
Together, these developments may mark a tipping point. Crypto, long considered an exotic and high-risk asset class by traditional financial institutions, is inching toward legitimacy. The question now looming large: Are banks ready?
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Reputational risk has traditionally served as a catch-all justification for regulators to scrutinize, or even penalize, banks that dealt with industries deemed controversial. Historically, that has included everything from cannabis businesses to payday lenders to crypto firms. By removing this factor, the Fed signaled a shift from values-based supervision to risk-based supervision grounded in financial stability and consumer protection.
“This change does not alter the board’s expectation that banks maintain strong risk management to ensure safety and soundness and compliance with law and regulation nor is it intended to impact whether and how board-supervised banks use the concept of reputational risk in their own risk management practices,” the Fed said in the press release.
“There’s certainly a change in how the administration views the digital assets industry,” Dan Boyle, partner at Boies Schiller Flexner, told PYMNTS in April. “This is not a confrontational posture.”
But it’s not just about removing a hurdle. The Fed’s move coincides with a surge in interest among banks and credit unions to offer more digital-first financial products.
The PYMNTS Intelligence report “How Zillennials Are Driving Innovation in Financial Services” found that 16% of zillennials — a microgeneration comprising older members of Generation Z and younger millennials — have their primary bank account with a digital-only bank. Only 11% of zillennials bank with a regional bank, less than the 22% who bank with a local bank or credit union.
Against this backdrop, the next wave of financial technology might just include crypto.
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Today’s end-users want faster payments, borderless money transfers and access to digital assets. Banks can either innovate or be disintermediated.
The PYMNTS Intelligence report “Credit Union Innovation Readiness Index: The Smallest Credit Unions Step It Up” found that when it comes to innovation, smaller lenders aren’t standing still.
Still, the transition is not without peril. Crypto markets remain volatile, cyber threats are evolving and the regulatory landscape is still under construction. For banks, entering the space without a clear strategy could prove costly. Crypto in 2025, ultimately, isn’t about hype; it’s about infrastructure, compliance and risk management.
Banks will also need to reassess their internal capabilities. From hiring blockchain-savvy compliance officers to building secure custody solutions and forging partnerships with crypto-native firms, the cost of entry is high.
The flip side of the equation is the competitive landscape. Crypto-native firms and nimble FinTechs are already seizing market share. Companies like Coinbase, Circle, Fireblocks and Anchorage Digital have built robust infrastructure, compliant pathways and brand loyalty among digital-first users.
In this context, banks that hesitate risk being relegated to providing infrastructure but ceding customer relationships. The alternative is to lean into innovation, embrace partnerships and compete in trust, usability and security.
