A segment of the Right has developed a growing suspicion of financial institutions. This group views any announcement or policy change by banks with skepticism, even when such policies actually work to expand access for, and protect the interests of, conservatives.
These suspicions are not unfounded. It has been widely reported that many banks took missteps, not only in response to changing markets, but also to changing pressures from Washington. However, the notion that these missteps are driven by systemic political discrimination among financial institutions is categorically false.
HOUSE REPUBLICANS PUSH TO REVAMP FEDERAL RESERVE MANDATE
The reality is more straightforward. Banks are businesses first and foremost. The idea that these profit-seeking institutions would purposely exclude large segments of revenue-generating customers defies logic, not to mention free market principles. They are required by law to weigh the risks in every decision they make, including determining who they can and cannot do business with. They are also required to “show their work” and defend their decisions to regulators, who may have different points of view. That’s where the idea of regulatory risk comes into play.
For more than a decade, the government imposed its own subjective views on banks by exploiting vague “reputation risk” loopholes to evaluate and ‘grade’ financial institutions. When regulators would signal that an otherwise law-abiding institution, customer, or sector could harm a bank’s reputation, it created a stigma that the banks could not afford to ignore, given the potential for heavy costs and legal exposure.
In the Obama years, that regulatory leverage became explicit. Under Operation Choke Point, the Justice Department and the FDIC pushed banks out of whole categories of lawful business they labeled as “high risk.” A congressional investigation uncovered thousands of records showing how government pressure was used to deliver policy outcomes favored by the White House but never authorized by Congress. It was a stark lesson in what happens when subjective standards meet enormous supervisory power. Banks are unfairly pressured, and it could result in a decision the bank otherwise would not have made to protect the firm from steep penalties.
The pattern did not end with a new administration. Under Biden, similarly broad interagency statements about digital assets coincided with widespread account closures and refusals. Whether one is in favor of crypto or not is beside the point. Markets should never be governed by ambiguous statements from unelected officials.
President Donald Trump’s executive order stops this government overreach into our business and financial activities. It directs federal banking agencies to strip reputational risk and equivalent concepts from guidance and exams and to build a government-wide strategy that prevents debanking.
These are smart policy solutions that will right the wrongs of previous administrations and ensure regulators cannot exploit bad policy to weaponize America’s financial system for political purposes.
Even after acknowledging the regulatory forces in Washington driving the issue, some critics still insist that banks dropped certain customers because of ideological biases and then placed the blame on regulators. Such a charge ignores the exposure banks assume when they take on a new client, retain an existing client, or exit someone they should not have — only to find out years later they got it wrong. Every potential mistake invites lawsuits, political scrutiny, and lost revenue.
Congress and the administration must take steps to stop regulatory overreach and abuse of power, fix bad policies that drove unnecessary account closures, and ensure no bank makes decisions for political or religious reasons. At the same time, banks must be able to consider all business risk — from operational, to credit, to litigation and even reputational, because it all impacts their business. It is important that banks are protected to make independent decisions that are in the best interest of their clients, shareholders, and the firm itself.
THE HUGE DEAL TRUMP COULD MAKE TO LOWER ENERGY PRICES
These efforts will level the playing field, no matter who sits in the White House. Americans are best supported by a financial system that serves customers, follows the law, is insulated from government weaponization for political purposes and ensures banks — not bureaucrats — are making business decisions.
Now is the time to modernize the rules so ideology cannot masquerade as supervision and to let banks compete to serve everyone.
David Ibsen is executive director of Americans for Free Markets (AFFM).
