A substantive refinement to the bill's definitions. v2 removes the 'Purposes' subsection from the findings and clarifies the definition of 'depository institution'. Crucially, v2 modifies the definition of 'reputational risk' to exclude negative publicity related to unlawful transactions with state sponsors of terrorism or foreign terrorist organizations, adding new definitions for these terms.
FIRM Act
- Sponsor
- Rep. Barr, Andy [R-KY-6]
- Committees
- Financial Services Committee (primary)
- Last action
- Jun 20, 2025
Bottom line
The FIRM Act aims to prevent federal financial regulators from using subjective reputational risk assessments to influence banks' decisions on who to serve, thereby limiting perceived 'political weaponization' of financial regulation.
What it actually does
This bill prohibits Federal banking agencies, including the National Credit Union Administration and the Bureau of Consumer Financial Protection, from considering 'reputational risk' when supervising depository institutions. It mandates the removal of reputational risk references from all agency guidance and explicitly forbids any supervisory or enforcement actions based on such risk, with an exception for unlawful transactions involving state sponsors of terrorism or foreign terrorist organizations.
Proponents argue
Proponents argue that the primary objective of financial regulation should be safety and soundness, not the enforcement of political agendas through subjective reputational risk assessments. They contend that all federally legal businesses and law-abiding citizens should have equal access to financial services without unlawful discrimination, and that the use of reputational risk has historically been abused, as seen in 'Operation Choke Point,' to limit access for certain industries.
Opponents contend
Opponents would likely contend that reputational risk is a legitimate and necessary component of comprehensive risk management for financial institutions. They might argue that ignoring potential negative public opinion could expose banks to financial instability, costly litigation, and a decline in confidence, thereby undermining the very safety and soundness the agencies are mandated to protect. Critics may also argue that the bill could inadvertently enable banks to engage with entities whose business practices, while legal, pose significant ethical or social concerns.
The bill is concise and clearly written, making it accessible for an informed reader to evaluate its core provisions within a short timeframe.
Section 1
Short Title
This section establishes the official short title of the Act as the 'Financial Integrity and Regulation Management Act' or the 'FIRM Act.' This provides a common and easily referencable name for the legislation.
Supporters argue
A clear and concise short title helps in public discourse and legislative tracking, making the bill's purpose more identifiable.
Critics contend
No specific opposition is typically raised against the short title of a bill.
Tradeoffs
N/A
Section 2
Findings
This section outlines Congress's rationale for enacting the bill, stating that financial regulation should focus on safety and soundness, not political agendas. It asserts that legal businesses should have equal access to financial services and criticizes the use of reputational risk by Federal banking agencies, citing 'Operation Choke Point' as a past misuse of this supervisory tool.
Section 3
Definitions
This section defines key terms used throughout the Act, including 'depository institution,' 'Federal banking agency' (explicitly including NCUA and BCFP), 'foreign terrorist organization,' 'reputational risk,' and 'state sponsors of terrorism.' Crucially, it defines 'reputational risk' as potential negative publicity, but explicitly excludes negative publicity related to unlawful transactions with state sponsors of terrorism or foreign terrorist organizations.
Section 4
Removal of Reputational Risk as a Consideration
This section mandates that all Federal banking agencies must remove any reference to 'reputational risk,' or similar terms, from their guidance, rules, examination manuals, and other documents. The goal is to ensure that reputational risk is no longer a factor in the examination and supervision of depository institutions.
Section 5
Prohibition on Reputational Risk Activities
This section broadly prohibits Federal banking agencies from engaging in any activity related to the regulation, supervision, or examination of reputational risk. This includes establishing rules, conducting examinations, issuing findings, making supervisory ratings, or taking enforcement actions based on reputational risk or any substantially similar term.
Section 6
Reports on Implementation
This section requires each Federal banking agency to submit a report to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services within 180 days of the Act's enactment. The report must confirm the Act's implementation and describe any changes made to internal policies as a result.
The definition of 'reputational risk' explicitly excludes negative publicity or public opinion related to unlawful transactions involving state sponsors of terrorism or foreign terrorist organizations.
Section 3(4)
Why it matters:This is standard legislative practice to provide precise definitions and exceptions within a dedicated definitions section. However, its placement could lead to a misinterpretation of the bill's scope regarding national security concerns.
Case for: This exclusion is vital for ensuring the bill does not inadvertently impede efforts to combat terrorism financing and other illicit activities. It demonstrates a careful consideration of national security implications, allowing regulators to continue addressing these severe risks.
Case against: Critics might argue that while necessary, this carve-out highlights the difficulty of completely separating 'reputational risk' from other forms of risk. They might question whether other critical public interest concerns (e.g., severe environmental damage, human rights abuses) should also warrant similar exceptions if they lead to financial instability.
Estimated impact: Ensures that financial institutions and regulators can continue to address risks associated with terrorism financing without being constrained by the bill's general prohibition on reputational risk supervision.
The definition of 'Federal banking agency' explicitly includes the National Credit Union Administration (NCUA) and the Bureau of Consumer Financial Protection (BCFP), expanding the scope beyond traditional bank regulators like the FDIC, OCC, and Federal Reserve.
Section 3(2)
Why it matters:This is standard practice for defining the scope of agencies covered by a bill. However, it's consequential because it extends the regulatory changes to a wider array of financial institutions and supervisory functions.
Case for: Including NCUA and BCFP ensures a consistent approach across a broader spectrum of federally regulated financial institutions and consumer protection activities. This prevents agencies from simply shifting 'reputational risk' considerations to other parts of the financial sector.
Case against: No specific opposition is typically raised against the comprehensive inclusion of relevant agencies in a definition, though agencies themselves might express concerns about the impact on their specific mandates.
Estimated impact: Extends the prohibition on reputational risk supervision to credit unions and consumer financial protection activities, impacting a wider range of financial entities and regulatory functions than if only traditional bank regulators were included.