Executive Order Seeks to Address Alleged Political Bias In Bank Access

Action: The President issued an Executive Order that seeks to address alleged denials of banking services (often called “debanking”) on the basis of “political affiliations, religious beliefs, or lawful business activities.” The Order outlines several measures, including directing banking regulators to remove “reputation risk” and similar concepts that could lead to “politicized or unlawful debanking” from documents used to regulate or examine financial institutions. The Order also directs the Small Business Administration (SBA) and banking regulators to take steps to ensure financial institutions subject to their jurisdictions address incidents of denials of banking services for these reasons. In addition, it directs the Treasury Secretary to develop a comprehensive strategy on the issue.

Trusted Insights for What's Ahead^®

• The Order is intended to respond to long-running concerns among some firms and policymakers that banking regulators have blocked lawful business’ access to banking services from political motives.
• For example, a 2014 investigation by Republican House members noted that as early as 2011, the Federal Deposit Insurance Corporation (FDIC) advised banks that certain firms – including firearms dealers, payday lenders, and online gambling platforms – should be considered “high-risk,” leading banks to deny services to such firms in some cases.
• In 2013, press reports revealed a Department of Justice (DOJ) initiative – “Operation Chokepoint” – which worked with the FDIC and Office of the Comptroller of the Currency (OCC) to block banking access for certain categories of firms including firearms dealers and payday lenders. DOJ ended this program in 2017. More recently, crypto firms have alleged that regulators have used similar tactics to block their access to the banking system in what some critics have called “Operation Chokepoint 2.0.”
• Even before the President’s most recent order, banking regulators had already indicated they would take a lighter regulatory approach to crypto-related activities. Following this Order, both the OCC and FDIC indicated they would initiate reviews of debanking efforts. It is unclear whether the Federal Reserve would initiate a similar review, though Michelle Bowman, the Vice Chair for Supervision, stated that debanking is “a problem in the banking system.”
• Still, it is unclear how widespread banks’ actions motivated by political or religious bias actually are – according to a Reuters analysis of consumers’ complaints about account closures, just 35 of over 8,300 complaints since 2012 cited political or religious bias.
• It is also unclear how the Order may affect cannabis businesses’ access to the banking system. Though 47 states have legalized some form of cannabis business (including medical cannabis), manufacturing and distribution of the drug remains illegal under Federal law. Because banks must abide by both Federal and state laws, and because the Financial Crimes Enforcement Network (FinCEN) requires that banks must file suspicious activity reports when providing financial services to a “marijuana-related business,” many banks have been unwilling to provide services to such firms.
• Congress has previously considered legislation – which the President has supported –  that would allow banks to serve cannabis businesses even as the drug would remain illegal under Federal law. Both banking and cannabis industry advocates have called on Congress and regulators to provide greater legal clarity.