FIRM Act

Bill Number: S. 875
Origin Chamber: Senate
Congress: 119th Congress, Session 1
Policy Area: Finance and Financial Sector
Status: Introduced
Latest Action: 2025-03-18: Placed on Senate Legislative Calendar under General Orders. Calendar No. 32.
Last Updated: 2026-03-12T15:09:35Z

AI-Generated Summary

Purpose

The Financial Integrity and Regulation Management Act (FIRM Act), S. 875, aims to prevent federal banking agencies from using "reputational risk" (potential harm to a bank's image from negative publicity, regardless of truth) as a factor in supervising banks and credit unions. It seeks to focus regulation solely on safety and financial stability, while promoting equal access to financial services for legal businesses and individuals without political bias or discrimination.

Key Provisions

Findings (Section 2): Congress states that banking supervision should prioritize safety and soundness, ensure non-discriminatory access to services, and avoid subjective political influences. It criticizes past uses of reputational risk, such as in "Operation Choke Point" (a 2018 initiative that limited services to certain industries).
Definitions (Section 3): Defines key terms, including "depository institution" (banks and insured credit unions), "Federal banking agency" (includes the Office of the Comptroller of the Currency, Federal Reserve, FDIC, National Credit Union Administration, and Consumer Financial Protection Bureau), "insured credit union," and "reputational risk."
Removal of Reputational Risk (Section 4): Agencies must eliminate all references to reputational risk (or similar concepts) from their rules, guidance, manuals, and documents used in supervising banks.
Prohibition on Reputational Risk Activities (Section 5): Bans agencies from creating rules, conducting exams, issuing findings, making ratings, or taking enforcement actions based on reputational risk.
Tailoring Regulation to Risk and Business Models (Section 6(a)): Requires agencies to customize future rules to match an institution's risk level and operations, considering overall regulatory burden, implementation challenges, and congressional intent. Includes reviews of recent regulations (from the past 7 years) with revisions due within 3 years, and annual reports to Congress.
Reduced Reporting for Community Banks (Section 6(b)): Mandates simpler, shorter reports (called "call reports") twice a year for small banks qualifying under the Community Bank Leverage Ratio (a simplified capital rule for smaller institutions).
Report on Supervision Modernization (Section 6(c)): Agencies must submit a report within 18 months on updating supervision practices, covering topics like evolving bank models, examiner training, technology use, and needs specific to community banks.
Implementation Reports (Section 7): Agencies must report to congressional committees within 180 days on how they've implemented the Act and changed internal policies.

Significant Changes to Existing Law

Eliminates Reputational Risk: Previously, agencies could consider reputational risk in exams and decisions, even though it's not mentioned in any federal statute. This Act removes it entirely, shifting focus to objective financial safety.
Enhances Regulatory Tailoring: Builds on prior laws (e.g., the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act) by requiring risk-based customization of rules for all institutions, including a look-back review of recent regulations.
Streamlines Reporting: Introduces reduced "short-form" call reports for qualifying community banks, easing paperwork burdens not explicitly required before.
Adds Oversight and Modernization: Imposes new reporting requirements and a comprehensive review of supervision practices, which were not previously mandated in this form.

Potential Impacts

On Government Agencies: Limits supervisory flexibility, potentially reducing subjective interventions but increasing the need for tailored, data-driven approaches. Agencies may face more scrutiny through required reports and could need to update training and technology.
On Citizens and Businesses: Improves access to banking services for legal industries (e.g., firearms or cannabis, previously targeted) by curbing perceived discrimination based on public opinion or politics. Reduces regulatory burdens on small banks, potentially lowering costs passed to customers.
On International Relations: No direct impacts mentioned; the Act focuses on domestic U.S. banking supervision.

Main Stakeholders Affected

Federal Banking Agencies: Directly regulated, including the Federal Reserve, FDIC, OCC, NCUA, and CFPB, which must revise policies and reporting.
Depository Institutions: Banks and credit unions, especially community banks, benefit from reduced oversight on reputation and tailored rules, easing operations.
Legal Businesses and Citizens: Industries and individuals seeking financial services (e.g., loans, accounts) gain protection against denial based on non-financial factors.
Congressional Committees: Banking committees in the Senate and House receive reports and oversee implementation.
State Bank Supervisors: Involved in the modernization report, potentially influencing coordinated oversight.

Notable Legal, Constitutional, or Political Implications

Legal: Constrains agency discretion under existing statutes like the Federal Deposit Insurance Act, emphasizing statutory limits on supervision. Could lead to challenges if agencies interpret "substantially similar" terms broadly, but promotes clearer, less subjective enforcement.
Constitutional: Supports equal protection principles by aiming to prevent discriminatory denial of services based on ideology or industry, without violating banks' rights as private entities to choose customers (as long as decisions are lawful).
Political: Addresses concerns over "weaponization" of regulation (e.g., Operation Choke Point), potentially reducing partisan use of agencies. As a bipartisan-introduced bill (though primarily Republican sponsors), it highlights debates on regulatory overreach versus consumer protection, with implications for future banking reforms.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Sen. Scott, Tim [R-SC]

Cosponsors (12)

Sen. Crapo, Mike [R-ID], Sen. Rounds, Mike [R-SD], Sen. Tillis, Thomas [R-NC], Sen. Kennedy, John [R-LA], Sen. Hagerty, Bill [R-TN], Sen. Lummis, Cynthia M. [R-WY], Sen. Britt, Katie Boyd [R-AL], Sen. Ricketts, Pete [R-NE], Sen. Cramer, Kevin [R-ND], Sen. Moreno, Bernie [R-OH], Sen. McCormick, David [R-PA], Sen. Banks, Jim [R-IN]

Recent Actions

2025-03-18: Placed on Senate Legislative Calendar under General Orders. Calendar No. 32.
2025-03-18: Committee on Banking, Housing, and Urban Affairs. Reported by Senator Scott SC, under authority of the order of the Senate of 03/14/2025 with an amendment in the nature of a substitute. Without written report.
2025-03-18: Committee on Banking, Housing, and Urban Affairs. Reported by Senator Scott SC, under authority of the order of the Senate of 03/14/2025 with an amendment in the nature of a substitute. Without written report.
2025-03-13: Committee on Banking, Housing, and Urban Affairs. Ordered to be reported with an amendment in the nature of a substitute favorably.
2025-03-06: Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
2025-03-06: Introduced in Senate

Bill Versions

Financial Integrity and Regulation Management Act — issued 2025-03-06 — PDF (6 pages)
Financial Integrity and Regulation Management Act — issued 2025-03-18 — PDF (18 pages)