The Federal Reserve to Seek Public Comment on Proposal to Address "Banking Deserts"

The Federal Reserve Board will seek public comment starting February 24 on a proposal to eliminate "banking deserts"—areas where banks have denied services due to concerns about reputation risk. The proposal restates the Committee’s policy position: prohibiting punitive blanket service terminations by banks or customer de-risking against those engaged in lawful activities, as well as refusing to open accounts for such individuals or entities. Federal Reserve Vice Chair Michelle W. Bowman noted: "We have observed troubling cases where banks have denied services—with regulators pointing to reputation risk—forcing financial institutions to cut ties with customers based on their political views, religious beliefs, or involvement in unwelcome but legal businesses. Discriminatory conduct by financial institutions for these reasons is both illegal and inconsistent with the Federal Reserve’s supervisory framework." Last June, the Federal Reserve announced it would no longer include "reputation risk" in bank regulatory examination criteria.