H.R.2702 - Financial Integrity and Regulation Management Act; FIRM Act (119th Congress)
Summary
H.R.2702, the Financial Integrity and Regulation Management Act (FIRM Act), aims to limit the influence of 'reputational risk' in the supervision of depository institutions by federal banking agencies. The bill seeks to prevent these agencies from using reputational risk as a basis for regulating or taking enforcement actions against financial institutions. It defines 'reputational risk' as potential negative publicity impacting an institution, excluding cases involving unlawful transactions with state sponsors of terrorism or foreign terrorist organizations.
Expected Effects
If enacted, the FIRM Act would require federal banking agencies to remove references to reputational risk from their guidance and examination manuals. This would likely lead to a shift in how these agencies supervise depository institutions, potentially reducing the influence of political considerations in regulatory decisions. The intended effect is to ensure that financial institutions are regulated based on safety and soundness rather than subjective views of public perception.
Potential Benefits
- Reduced Political Influence: Aims to limit political bias in banking regulation.
- Fair Access to Financial Services: Promotes equal access to financial services for legal businesses.
- Focus on Safety and Soundness: Encourages regulators to prioritize financial stability over reputational concerns.
- Clarity in Regulation: Provides clearer guidelines for depository institutions by removing subjective reputational risk assessments.
- Prevents 'Choke Point' Tactics: Aims to prevent agencies from limiting access to financial services based on perceived reputational risks.
Most Benefited Areas:
Potential Disadvantages
- Potential for Increased Risk-Taking: Removing reputational risk considerations might lead to institutions engaging in riskier behavior.
- Limited Regulatory Oversight: May reduce the ability of agencies to address legitimate concerns about unethical or harmful business practices.
- Difficulty Addressing Emerging Risks: Could hinder the ability of regulators to respond to new types of risks that are primarily reputational in nature.
- Public Trust Concerns: Could erode public trust if banks are perceived as engaging in activities that are legal but morally questionable.
- Unintended Consequences: The broad removal of 'reputational risk' considerations could have unforeseen impacts on the stability of the financial system.
Constitutional Alignment
The bill's focus on limiting regulatory overreach and ensuring fair access to financial services aligns with general principles of limited government and equal protection. However, the Constitution does not explicitly address the specific issue of reputational risk in banking regulation. Congress's power to regulate commerce (Article I, Section 8) provides a basis for regulating financial institutions, but the extent to which reputational risk can be considered is a matter of policy debate.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).