FIRM Act

The Financial Integrity and Regulation Management Act, or FIRM Act, seeks to prevent the political weaponization of federal banking agencies by eliminating "reputational risk" as a component of depository institution supervision. Congress finds that the primary goal of financial regulation is safety and soundness, and all legal businesses should have equal access to financial services without unlawful discrimination or political influence. The bill asserts that reputational risk is a subjective concept, not based in statute, which allows agencies to pursue political agendas rather than focusing on institutional safety and soundness. The Act specifically defines reputational risk as the potential for negative publicity or public opinion, whether true or not, to adversely impact a depository institution through declining confidence, customer base, litigation, or revenue. It highlights past instances, such as "Operation Choke Point," where federal agencies allegedly used reputational risk to limit financial services for certain industries. To address this, the bill mandates that all federal banking agencies remove references to reputational risk from their guidance, rules, and examination manuals. Furthermore, the FIRM Act explicitly prohibits federal banking agencies from engaging in any activity related to the regulation, supervision, or examination of reputational risk. This includes establishing rules, conducting assessments, issuing supervisory criticisms, making ratings decisions, or taking enforcement actions based on reputational concerns. The legislation also introduces provisions requiring federal financial institutions regulatory agencies to tailor regulations to the specific risk profiles and business models of institutions, aiming to limit regulatory burdens. Agencies are required to review regulations issued over the past seven years to apply this tailoring principle. Additionally, the bill mandates reduced reporting requirements for banks eligible for the Community Bank Leverage Ratio. Finally, it requires federal banking agencies to submit reports to Congress confirming the Act's implementation and detailing policy changes, as well as a separate report on modernizing bank supervision.