Reputational risk, REKT

The Federal Reserve has removed "reputational risk" from its manuals explaining how its staff should assess the soundness of banks.

Why it matters: This is not only a nail in the coffin for the unofficial government effort critics dubbed "Operation Chokepoint 2.0," it will also make it harder for any other such efforts to be quietly implemented by a future administration.

Catch up fast: This year, as the Congress started digging into the question of banks discriminating against crypto firms, a clear policy tool emerged as a means to execute a campaign against an industry: reputational risk.

• Sen. Cynthia Lummis (R-Wyo.) had a placard printed for a Senate banking committee meeting where she showed the concept spelled out in a Fed manual, its "Account Access Implementation Handbook."

The big picture: Prudential regulators have broad discretion to ask tough questions about the riskiness of financial products, in dollars and cents terms.

Yes, but: They also had this loose category called reputational risk, where they could raise questions like, for example: "Would serving this industry make the bank look less trustworthy, making other customers want to leave it?"

• Customers leaving is, after all, a systemic question. A bank can't handle too many people leaving too quickly.

• But as hearings we covered early on illuminated, there was a lot of leeway for interpretation.

What they're saying: "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," the Fed wrote in its statement yesterday.

What's next: The Fed also announced it plans to train staff to make sure they are clear on the policy change.