Recently, two coalitions of state attorneys general submitted separate comment letters in response to a set of proposed rules issued by the OCC and the FDIC (previously covered by InfoBytes here). The first rule would redefine “unsafe or unsound practices” under Section 8 of the FDI Act, and the second rule would eliminate reputation risk as a factor in bank supervision.

First, a coalition of 16 state attorneys general issued a letter opposing the agencies’ proposed rule to redefine an “unsafe or unsound practice.” The proposed definition, which would center on “material risks to the financial condition of an institution,” would “generally require that an imprudent practice, act, or failure to act, if continued, would be likely to materially harm the institution’s financial condition.” The letter argued that the proposed rule would significantly narrow the scope of supervision by requiring material financial harm to be present or imminent before regulators could act. The coalition also warned that limiting oversight to actual harm —rather than potential risks — could expose the banking system to threats from emerging sectors, such as cryptocurrency, private credit, and AI, drawing parallels to regulatory lapses preceding the 2007-2009 global financial crisis. The letter cited the Dodd-Frank Act’s mandate for robust supervision and criticized the proposal for disregarding congressional findings and weakening consumer protections.

Additionally, a separate coalition of 25 state attorneys general submitted a letter supporting the agencies’ proposal to eliminate reputation risk from the agencies’ supervisory standards. Their letter argued that reputation risk is subjective, lacks statutory basis in the FDI Act, and has historically led to inconsistent and inappropriate enforcement, including government-backed debanking of lawful but “politically disfavored” industries. The coalition asserted that removing reputation risk would restore regulatory focus to objective measures of safety and soundness, strengthen the dual banking system, and protect state sovereignty over commercial licensing decisions.