Trump Targets “Debanking” with Sweeping Executive Order
NEW YORK (AP) — President Donald Trump has issued a sweeping executive order, directing federal bank regulators to launch an immediate investigation into allegations of “debanking”—the practice of financial institutions closing accounts or refusing services to individuals and businesses based on their political or religious beliefs, or their industry affiliation. This move, signed on Thursday, marks a significant escalation in Trump’s long-standing critique that banks have unfairly targeted conservatives and industries such as firearms manufacturers and cryptocurrency companies.
Regulators Mandated to Investigate Discrimination
The executive order empowers federal regulators to ensure that banks do not discriminate on these grounds, echoing protections found in the Equal Credit Opportunity Act, a landmark Civil Rights Movement era law that prohibits discrimination based on race, ethnicity, religion, and sex. Regulators are mandated to probe instances of alleged discrimination and refer these cases to the Department of Justice within 120 days, potentially opening banks to civil or criminal investigations, fines, or other penalties.
Understanding “Debanking”
At the heart of the issue is “debanking,” a term that typically refers to banks unilaterally ending relationships with clients they no longer wish to serve. While banks assert their constitutional right to choose clients without violating anti-discrimination laws, they often cite risk assessments as the basis for such decisions. Trump has personally accused major financial institutions, specifically JPMorgan and Bank of America, of debanking him and his companies after he left office in 2021. Both banks have publicly denied these allegations, with JPMorgan stating, “We don’t close accounts for political reasons, and we agree with President Trump that regulatory change is desperately needed.”
The Role of Reputational Risk and “Operation Choke Point”
The concept of “reputational risk” also features prominently in the debate. This refers to the potential harm to a bank’s reputation by associating with certain industries or individuals deemed controversial or risky. Historically, government regulators, such as those under Democratic President Barack Obama’s Department of Justice, have advised banks to avoid “high-risk” sectors like payday lenders and firearms manufacturers, a policy that conservatives termed “Operation Choke Point.” Trump’s executive order seeks to remove reputational risk as a factor in how regulators assess a bank’s safety and soundness, a stance welcomed by the banking industry, which largely prefers simpler regulations and has already begun to remove mentions of reputational risk from their internal policies since Trump’s return to the White House.
Counterarguments on Risk Assessment
However, former Treasury Department official Graham Steele argues that “financial risk, and reputational risk, can be intertwined.” He points to examples such as Signature Bank’s 2023 failure, partly due to its exposure to the volatile cryptocurrency market, and Credit Suisse’s $500 million payment in 2009 for laundering money, as evidence that associations with high-risk entities can indeed threaten a bank’s stability.
Cryptocurrency Industry Backs Trump’s Stance
The cryptocurrency industry, a vocal supporter of Trump in 2024, has particularly championed his stance against debanking. They argue that while the Biden administration did not explicitly force banks to debank crypto firms, regulatory concerns expressed by Biden’s officials were interpreted by banks as a directive to steer clear, a situation critics dubbed “Operation Choke Point 2.0.”
Congressional Support for Legislation
Republicans in Congress are also pushing legislative solutions. Senator Tim Scott of South Carolina, who chairs the Senate Banking Committee, has introduced legislation that would prevent bank regulators from factoring reputational risk into their assessments of a bank’s health. Scott stated, “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.” The order underscores a growing tension between political directives and the independent risk assessments of the financial sector.
