For more than two decades, reputational risk occupied an unusual but deeply influential position in governance frameworks: difficult to define, hard to quantify, often misunderstood, yet persistently powerful in shaping decisions.
Boards cited it to justify product pauses.
Executive committees invoked it to steer strategy away from controversy.
Risk functions tagged it to issues that didn’t neatly fit credit, operational or compliance risk.
It was imperfect, but it played a practical role in governance.
That role is now being deliberately unwound.
Regulators have signalled a foundational shift in how reputation is treated.
In 2025, multiple U.S. banking regulators moved to remove reputational risk from formal supervision, fundamentally altering the supervisory vocabulary without reducing the reality executives must govern.
This doesn’t mean reputation no longer matters. It means firms can no longer shelter behind a catch-all label to manage what remains a very real set of consequences.
The End of a Catch-All and the Beginning of Clarity
At its core, reputational risk has always been slippery. Definitions vary. Measurement is subjective, primarily because damage to reputation is consequential from so many other possible factors. Measurement is also affected by timing and duration; some consequences last a long time, others are fleeting and soon forgotten. Different stakeholders interpret signals differently. And for supervisors, this invited inconsistency.
In March 2025, the Office of the Comptroller of the Currency instructed examiners to stop examining for reputation risk and began removing references from its supervisory handbooks.
By mid-year, the Federal Reserve Board announced it would no longer treat reputational risk as a formal component of bank examinations, removing it from manuals and examiner programs.
In October, the OCC and the Federal Deposit Insurance Corporation issued a Notice of Proposed Rulemaking explicitly to prohibit regulators from using reputation as a basis for supervisory criticism or adverse action and to strip it altogether from supervisory frameworks.
This represents a significant departure from decades of practice. Historically, banking supervisors treated reputational risk as an adjunct to safety and soundness, even when it was difficult to operationalise (a pattern evident from the rise of reputational examination practices in the 1990s onward).
The regulator’s stated rationale is clear: reputational risk was subjective, inconsistently applied, and rarely added material value beyond existing risk models. Activities that might impact reputation, negative publicity, stakeholder concern, or public scrutiny, typically manifest through tangible operational, legal, or financial channels that supervisors already evaluate.
But while regulators are stepping back from the label, the consequences that label once captured remain very real.
What Reputational Risk Actually Did for Governance
Even if imperfect, reputational risk served a practical purpose:
- It gave boards a conceptual umbrella for issues that straddled multiple risk categories.
- It legitimised discussion of ethical harms before financial losses occurred.
- It allowed escalation paths for stakeholder trust issues that weren’t yet policy breaches.
When a high-profile incident loomed, perhaps a data breach, activist criticism, or ethical quandary, risk leaders often invoked reputation because they lacked a better governance home.
With the supervisory category removed, that governance convenience vanishes, but the consequences remain.
Reputational damage can still cause tangible harm, lost revenue, market share erosion, stakeholder withdrawal, and increased scrutiny, all measurable outcomes that directly affect strategic objectives.
More importantly, these consequences can now slip through governance cracks if firms rely on outdated frameworks that no longer have a labelled place for them.
Regulatory Signals Are Not a Signal of Deregulation
A crucial misinterpretation would be to conclude that regulators no longer care about reputation.
The opposite is true.
Regulators’ removal of reputational risk is aimed at sharpening the analytic focus, not diminishing concern about adverse outcomes.
The Federal Reserve’s announcement made this explicit: while examiners will no longer review reputational risk, banks are still expected to maintain “strong overall risk management” and consider reputational factors as part of broader governance.
Similarly, the FDIC/OCC proposal recognises that activities affecting reputation remain important, but they should be anchored in quantifiable risk drivers such as operational failures, compliance breakdowns, or governance lapses. Root cause analysis has now come to the fore.
This requires a mental and structural shift in how boards and executives think about why reputation matters, and where responsibility for it resides.
The Governance Gap Emerging in Practice
The elimination of reputational risk as a supervisory category exposes four core governance challenges:
1. Early warnings have lost a labelled home.
Previously, an emerging issue could be escalated under reputational risk even without clear financial or compliance indicators. Without it, organisations must define escalation triggers more precisely and with much less ambiguity.
2. Who owns ethical and stakeholder trust impacts?
Does marketing? Legal? Compliance? Risk? Strategy?
With reputation no longer a unifying category, accountability for stakeholder trust must be explicitly allocated across governance functions.
3. Whistleblowing and escalation frameworks need recalibration.
Whistleblowing channels often trigger reputational considerations before hard losses materialise. Boards will need confidence in these systems as real risk signals, not compliance artefacts.
4. Crisis playbooks need new triggers.
Many crisis management frameworks activate on reputational thresholds, e.g., media coverage, sentiment scores, or public commentary. Without a risk label, firms must redesign these triggers in terms of behaviour, impact and stakeholder sentiment metrics.
Culture, Conduct and Reputation Are Colliding
Reputation has never existed in isolation. It is the product of culture, conduct and governance choices.
A firm’s culture determines how issues are surfaced internally.
Conduct determines whether controls function under stress.
Governance determines how issues escalate and are acted upon.
All of these factors, when weak, create conditions for reputational consequences.
Removing the reputational risk label forces organisations to stitch these threads together, rather than rely on a convenient catch-all bucket. The question shifts from:
Is reputation at risk? To what behaviour or governance breakdown is creating vulnerability right now?
This is a demanding shift, but it is also a more defensible one.
From Reputational Risk to Reputational Consequence Management
One of the unintended consequences of removing reputational risk as a supervisory category is that it forces organisations to confront a question they have long deferred: if reputation is not a risk to be managed, what exactly is it?
A more useful framing — developed in earlier thinking on the subject — is to view reputation through the lens of reputational consequences rather than reputational risk. Reputation is not a cause. It is an outcome: the visible effect of culture, behaviour, governance and decision-making over time.
When those underlying drivers are weak, reputational damage follows. When they are strong, reputation is reinforced, often without ever being consciously “managed”.
This distinction matters. Risk categories encourage classification. Consequences demand accountability.
Reputational consequence management shifts the focus away from abstract labels and toward practical governance questions. How does behaviour inside the organisation translate into external trust? Where do small internal failures become visible public breakdowns? At what point do cultural or governance weaknesses create irreversible external consequences?
Seen this way, reputation cannot be governed reactively. It must be embedded into strategy, incentives, escalation frameworks and leadership behaviour not addressed only once public scrutiny arrives.
This perspective has been articulated in our prior work on reputation and operational risk, which argued that effective governance requires organisations to move beyond labels and manage reputational consequences as an integral part of business-as-usual decision-making.
The regulatory shift now underway does not invalidate this thinking. It confirms it. By removing reputational risk as a formal category, supervisors are effectively requiring firms to do what many governance frameworks have long avoided: make explicit how trust is built, how it is lost, and who is accountable when it erodes.
Realigning Risk Reporting and Assurance in 2026
Boards and executive leaders will need to rethink four core areas:
Risk Appetite
Risk appetite statements must articulate tolerance for ethical, social and stakeholder impacts, not simply financial exposure. This will require new language and quantitative guardrails, and require detailed root cause analysis to assess the implications of risk exposures.
Reporting and Dashboards
Risk reporting must integrate behavioural, conduct and stakeholder sentiment indicators, not rely on ambiguous reputational labels.
Escalation Frameworks
Organisations must define explicit escalation thresholds tied to observable behaviours and outcomes, not post-hoc interpretation of reputational harm.
Assurance and Audit
Internal audit frameworks should probe not just control design and effectiveness, but escalation cultures, stakeholder trust measures, and leadership responses to early signals.
This shift will feel uncomfortable for many: ambiguity is being replaced by judgement with accountability.
The Risk of False Comfort
There is a real danger that firms interpret the regulatory shift as a softening of scrutiny, rather than a call for greater clarity.
If organisations assume reputation no longer matters, they risk leaving themselves exposed in ways that are more tangible than before: lost customers, legal challenges, reduced investor confidence, and heightened oversight from other stakeholders.
Reputation hasn’t gone away; Its governance has become more demanding.
From Reputational Risk to Reputational Accountability
Reputational risk may be gone from supervisory frameworks, but reputation itself remains one of the most material intangible assets an organisation holds. Its erosion can cascade into financial loss, stakeholder disengagement, regulatory scrutiny, and long-term strategic disadvantage.
In 2026, the organisations that succeed will be those that:
- Integrate reputational consequences explicitly into risk and governance models
- Define early indicators tied to behaviour and escalation
- Assign clear accountability for stakeholder-related impacts
- Design assurance and reporting to reflect real drivers, not labels
Reputation has not become less important. It has become harder and more rewarding to govern with clarity.
Why This Matters Now
2026 will be the first full year in which firms begin operating with risk taxonomies that exclude reputational risk as a supervisory category. This is a profound change in the language of risk governance.
Boards must not only understand the implications, but they must also lead the evolution of frameworks, language and accountability around reputational consequences.
This is not semantic hygiene. It is the future of governance.
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