Congressional committee debates accountability for financial institution decision to cut off services related to certain organizations or individuals
In the realm of banking, a contentious issue has emerged: de-banking. This practice, which involves banks terminating services to clients, has become a topic of heated discussion, particularly in the context of the crypto industry.
Recent Senate Banking Committee hearings have highlighted the substantial influence that banking regulators wield over banks. Regulatory bodies such as the Federal Reserve, OCC, FDIC, and FinCEN oversee banks' compliance, and their rules can indirectly force banks to "debank" customers if deemed risky, even absent illegal activity.
Former Consumer Financial Protection Bureau Director Rohit Chopra recently noted increasing agreement about the issue of de-banking across the political spectrum. Even former President Trump called out banks like Bank of America and JPMorgan Chase for allegedly shutting out conservative customers.
Banks themselves, motivated by concerns over legal, reputational, or political risks, make the final decisions to terminate accounts. However, these decisions are often influenced or sharpened by regulatory guidance and enforcement pressures. For instance, banks may close accounts linked to controversial causes or perceived higher risks without providing explanations or appeals processes, making de-banking a potent but opaque practice.
Stephen Gannon, a partner at law firm Davis Wright Tremaine, advocates for employing better technology to modernize the partnership between banks and regulators. Aaron Klein suggests rethinking anti-money laundering requirements and suspicious activity reporting priorities to improve this partnership.
The crypto industry, in particular, has been affected by de-banking. Nathan McCauley, CEO of crypto platform Anchorage Digital, and his company, a federally chartered cryptocurrency bank, were de-banked in 2023. The Federal Deposit Insurance Corp., under the Biden administration, is accused by the cryptocurrency industry of ordering financial institutions to "de-bank" crypto firms.
Sen. Elizabeth Warren, D-MA, has urged support for the work of the CFPB and has proposed five rules that would address de-banking. She believes a strong CFPB is needed as a partner to stop de-banking. Sen. Thom Tillis, R-NC, has stated that "We've got a lot of regulator-initiated de-banking going on with this concept of reputational risk."
Committee Chair Tim Scott, R-SC, is committed to a bipartisan solution to stop de-banking. Mike Ring, CEO of Old Glory Bank, established in 2023 to serve those who've been de-banked, suggested that competition, not regulation, is the simplest answer to de-banking.
The issue of de-banking is considered pervasive within the crypto industry. McCauley noted that the betrayal of trust by banks is devastating to the crypto industry. The joint statement from the Federal Reserve, FDIC, and the Office of the Comptroller of the Currency in January 2023 warned national banks against serving crypto clients, which further exacerbates the problem.
As the debate continues, it is clear that a collaborative approach between banks, regulators, and the industries affected by de-banking is necessary to find a solution that ensures financial security while promoting fair and transparent banking practices.
- The conversation surrounding de-banking has expanded beyond the banking industry to encompass various aspects such as politics, as former President Trump and Sen. Thom Tillis, R-NC, have voiced concerns about regulatory-initiated de-banking.
- In the realm of general-news, ongoing debates focus on a collaborative approach between banks, regulators, and affected industries to find a solution that balances financial security with fair and transparent banking practices, as advocated by Committee Chair Tim Scott, R-SC, and Michael Ring, CEO of Old Glory Bank.
