Senate panel debates accountability for financial exclusion of targeted businesses
In the realm of finance, the issue of de-banking - the practice of banks closing or refusing accounts based on certain customer characteristics, including political ideology - has become a contentious topic.
During a recent hearing, Nathan McCauley and Stephen Gannon, industry experts, pointed fingers at regulators, arguing that over-regulation and shifting stances on reputational risk have contributed to de-banking. Sen. Elizabeth Warren, on the other hand, warned that halting the activities of the Consumer Financial Protection Bureau (CFPB) would impede efforts to stop de-banking.
The problem of de-banking is not confined to traditional banking. In the crypto industry, it's widely assumed that if you're a crypto company, you've had trouble accessing the bank system. The Federal Deposit Insurance Corp., under the Biden administration, has been accused of ordering financial institutions to "de-bank" crypto firms.
In response to these concerns, the federal banking agencies announced they would no longer treat reputational risk as a standalone supervisory category, weakening banks' justification for debanking based on ideological concerns. The Trump administration has also taken direct regulatory action, with a draft executive order directing regulators to investigate and potentially fine banks that deny services for political reasons.
Sen. Thom Tillis stated that over-regulation leads to de-banking de facto, with a lot of regulator-initiated de-banking going on. Sen. Elizabeth Warren issued a letter urging President Trump to support the work of the CFPB and direct other agencies to address de-banking.
Committee Chair Tim Scott is committed to a bipartisan solution to stop de-banking. In a bid to address this issue, Aaron Klein, a senior fellow at the Brookings Institution, suggested rethinking anti-money laundering requirements and suspicious activity reporting priorities.
The crypto industry has not been left out of the fight. McCauley, a crypto industry leader, mentioned the betrayal of trust as the most devastating part of de-banking. His company, a federally chartered cryptocurrency bank, was de-banked in 2023. In response, Mike Ring, CEO and co-founder of Old Glory Bank, established in 2023 to serve those who've been de-banked, argued that big banks are the problem and suggested a market solution like competition as the simplest answer to de-banking.
The joint statement from the Federal Reserve, FDIC, and the Office of the Comptroller of the Currency warned national banks against serving crypto clients in January 2023. However, the FDIC recently released 175 documents related to its supervision of banks engaging in crypto-related activities.
Gannon advocated for a partnership between banks and regulators that employs better technology to file Suspicious Activity Reports (SARs) rather than having armies of people. Former Consumer Financial Protection Bureau Director Rohit Chopra noted an increasing agreement about de-banking across the political spectrum.
The issue of de-banking is complex and multifaceted, involving both banks and regulators. As the debate continues, it's clear that a solution will require collaboration and a shift in perspective from all parties involved.
- The issue of de-banking has sparked discussions in various sectors, including business, politics, and general news, as seen in the ongoing debates among Senators, industry experts, and regulatory officials.
- The complex nature of de-banking has led to a call for collaboration and a shift in perspectives from all parties involved, as acknowledged by former Consumer Financial Protection Bureau Director Rohit Chopra, who noted an increasing agreement about the issue across the political spectrum.
