Trump Targets “Debanking” Practices in Financial Industry with Executive Order
NEW YORK (AP) — In a significant move targeting the financial industry, President Donald Trump signed an executive order Thursday, initiating a comprehensive federal investigation into whether U.S. banks have engaged in discriminatory practices against individuals and businesses based on their political or religious beliefs. The order specifically calls for probes into alleged “debanking” of conservatives and industries such as firearms manufacturers and cryptocurrency companies.
What is “Debanking”?
“Debanking” refers to the practice where financial institutions close accounts or decline to offer services to individuals or entities. While banks typically cite risk assessments as the basis for such decisions, the Trump administration contends that these actions are sometimes politically motivated. The banking industry, however, maintains its constitutional right to choose clients, provided it adheres to anti-discrimination laws like the Equal Credit Opportunity Act, a landmark piece of legislation from the Civil Rights Movement that prohibits discrimination based on race, ethnicity, religion, and sex.
Trump’s Personal Allegations and Executive Order Directives
The executive order comes amid President Trump’s strong personal allegations. He recently asserted in a CNBC interview that major institutions like JPMorgan and Bank of America had “debanked” him and his companies after he left office in 2021, a claim both banks have unequivocally denied. A spokeswoman for JPMorgan Chase stated, “We don’t close accounts for political reasons, and we agree with President Trump that regulatory change is desperately needed.” In response to these concerns, Trump’s order directs federal bank regulators to enforce non-discrimination rules rigorously. It also mandates that any alleged instances of such discrimination be referred to the Department of Justice within a stringent 120-day timeframe, potentially leading to civil or criminal investigations, substantial fines, or other penalties for financial institutions found in violation.
Reputational Risk and “Operation Choke Point”
A core aspect of the executive order addresses “reputational risk,” a concept where government regulators have, in the past, encouraged banks to avoid doing business with industries perceived as “high risk.” This was notably seen during the Obama administration’s “Operation Choke Point,” which reportedly urged banks to distance themselves from sectors including payday lenders and firearms manufacturers. Similarly, the Biden administration’s expressions of concern regarding the cryptocurrency industry were dubbed “Operation Choke Point 2.0” by critics, implying a similar governmental influence on banking relationships. Trump’s order explicitly demands that bank regulators remove reputational risk as a factor in assessing a bank’s safety and soundness.
Banking Industry Response
Major bank lobby groups, despite benefiting from the Trump administration’s broader deregulation efforts, issued a joint statement acknowledging the executive order. They emphasized that it is “in banks’ best interest to take deposits, lend to and support as many customers as possible,” attributing current complexities to “regulatory overreach, supervisory discretion and a maze of obscure rules.” They also indicated a willingness to adapt, stating that the banking industry has already begun removing mentions of reputational risk from their internal policies and procedures, particularly since Trump returned to the White House.
Counterarguments and Financial Risk
However, former Treasury Department official Graham Steele, among others, argues that “financial risk, and reputational risk, can be intertwined.” He cites concrete examples, such as Signature Bank’s failure in 2023, partly due to its significant exposure to volatile cryptocurrency assets, and Credit Suisse’s 2009 penalty of half a billion dollars for laundering money on behalf of Iran. These cases underscore the argument that a bank’s association with certain entities can indeed pose substantial financial and legal liabilities.
Political Implications and Conservative Stance
The issue of debanking has become a rallying cry for conservatives, garnering significant political attention. Senator Tim Scott (R-South Carolina), the ranking member of the Senate Banking Committee, has already introduced legislation aimed at preventing bank regulators from considering reputational risk in their assessments. His statement, “Debanking federally legal businesses and law-abiding citizens is un-American, and President Trump’s Executive Order is a critical step towards protecting Americans’ access to financial services,” encapsulates the conservative viewpoint driving this policy initiative, further solidifying the cryptocurrency industry’s support for Trump in the 2024 election.
