Reactions to Trump’s Debanking Executive Order

Today, the White House dropped its latest executive order entitled Guaranteeing Fair Banking for All Americans, one that many of us have been waiting for since the election, concerning ‘debanking’.

Debanking is a thorny subject and it means a lot of things to different people, so I’ll briefly disambiguate. The debanking I am concerned about pertains to situations in which a bank summarily fires a client not because of any wrongdoing but simply because the bank perceives that it’s too politically risky to continue to serve that entity. Nick Anthony at Cato in this post helpfully distinguishes “operational” and “governmental” debanking. Operational debanking is a more routine situation in which the client has done something worthy of account closure, whether it’s overdrafts, late payments, a change in risk profile, etc. This is not what we are worried about. Governmental debanking is the more insidious case in which the government asks the regulators to lean on the banks to shutter accounts of politically disfavored entities. This can be effectuated through various means: specifically redlining an industry in which the client operates (see Obama’s Operation Choke Point, or Biden’s so-called Operation Choke Point 2.0), making it too costly for banks to serve a client, or simply applying coercive political or moral pressure (“moral suasion” in the banking parlance) to persuade a bank to “derisk” an individual or firm.

Over the years, a number of interest groups have alleged that they have been the victims of debanking or financial exclusion more generally (unhelpfully, people conflate deplatforming from internet companies like PayPal with debanking). Firearms manufacturers and payday lenders were targets under Obama, legal operators in the adult and cannabis industry have suffered chronic financial exclusion, and crypto firms were targets under Biden. The FP has reported on a diverse array of debanking victims, from Jan 6ers to Muslims making donations to crowdfunding platforms. This isn’t strictly an issue that has only affected conservatives. The question of whether banks simply didn’t want these clients because of their perceived or actual risk, or whether there was a government directive to debank them en masse, is critical. At this point, we have sufficient evidence to claim that the wave of debankings suffered by crypto firms between late 2022 and Trump’s second inauguration was deliberate, systematic and coordinated. (I’m not going to rehash it here – for more, see my fuller corpus of work on the topic.)

Confusing the issue is apparent instances of other, less organized cases of debanking, such as those suffered by President Trump himself and those in his circle, including Melania and other members of his family. Obviously, a sitting or former president being unceremoniously dumped by a bank with which he has maintained a decades-long relationship with should raise eyebrows. When Nigel Farage was derisked by Coutts (NatWest) in 2023 for his political views, it caused a sensation in the UK and led to the resignation of the NatWest CEO. Without a doubt, banks should not be permitted to hide behind the Bank Secrecy Act or vague references to risk without explaining themselves. (Infuriatingly, 99% of the time, banks give their clients no explanation whatsoever for why they are terminating their accounts. This should change.) But what I am most concerned with is pressure exerted by regulators that results in widespread, indiscriminate debanking. This is what Operation Choke Point and what I’ve dubbed OCP2.0 were all about: systematic discrimination, led by the Federal government, against entire legal industries. In Trump’s case, he was the most deplatformed individual on the planet in 2021. He was kicked off virtually every internet platform. He was even recursively deplatformed: services like Parler that aimed to provide a home for Trump and his supporters were themselves deplatformed by underlying infrastructure providers – also known as “deep deplatforming”. So perhaps it’s not that surprising that Trump was also dumped at the time by banks with which he had long-held relationships. He had this to say on CNBC about debanking recently:

They did discriminate. I had 100s of millions of dollars in cash [at JPM Chase]. I had many accounts loaded up with cash and they told me “I’m sorry sir, we can’t have you. You have 20 days to get out”. I said you’ve gotta be kidding I’ve been with you for 35-40 years. I didn’t know what to do with it. […] And it’s not like “you’ve defaulted on a loan.” This is no default. This is nothing but cash. I call up BoA routinely and I spoke to [the CEO] and they have 0 interest. I called Brain [Moynahan] to deposit $1b+ and he said “we can’t do it”. I ended up going to small banks all over the place. I was putting $10m here, $10m there. It was the craziest thing. It’s lucky I even had them! They were doing me a favor. That’s because the banks discriminated against me very badly. They discriminated against many conservatives. I believe what they did is they went to the regulators. The banks are not afraid of anything but a regulator. I believe that Biden – really, the high IQ radical left people that worked for Biden – I believe they told the banking regulators “do everything you can to destroy Trump.” And that’s what they did.

For this reason, it seems like the complaints regarding debanking, made mainly but not exclusively by conservatives, have resonated with Trump. He promised on the campaign trail to end Operation Choke Point 2.0, and indeed he has largely done so. Trump’s financial regulatory appointees are generally positively disposed towards crypto, and in many cases have spoken out against debanking under Biden. Even Jerome Powell has acknowledged it as a concern, which is interesting, because it happened under his watch. Fed guidance restricting banks from engaging with or custodying crypto, providing services to crypto firms, or engaging with stablecoins, has been rolled back. The OCC and FDIC have affirmatively stated that regulated FIs can indeed deal with crypto clients and that crypto does not pose an inherent “safety and soundness” risk. Explicit stablecoin regulation, partially designed to open the door to banks dealing with stablecoins, has been signed into law. The FDIC has released troves of documents revealing their successful efforts to stymie banks serving crypto in 2022-24.

And importantly, the Fed, FDIC, and OCC, have all recently disavowed the incorporation of “reputational risk” into their bank supervisory framework. (This was an extremely bad idea that involved assessing whether the banks were dealing with unsavory clients and determining that that actually posed a risk to the solvency of the bank. Of course, reputational risk is in the eye of the beholder, so this was just a roundabout way of pressuring banks to deplatform industries that the regulators disapproved of.) These are all positive moves, and now the Trump admin has gone further and released an EO further taking the banks to task.

The Executive Order

Today’s executive order defines debanking broadly as follows:

The term "politicized or unlawful debanking" refers to an act by a bank, savings association, credit union, or other financial services provider to directly or indirectly adversely restrict access to, or adversely modify the conditions of, accounts, loans, or other banking products or financial services to any customer or potential customer on the basis of the customer's or potential customer's political or religious beliefs, or on the basis of the customer's or potential customer's lawful business activities that the financial service provider disagrees with or disfavors for political reasons.

The EO goes on to ask financial institutions to “make reasonable efforts to identify and reinstate any previous clients of the institution or any subsidiaries denied service through a politicized or unlawful debanking action…”

The trouble with this is that, while reasonable on its face, it will prove difficult to determine whether a bank fired a client because of their political views or line of work, or because the bank viewed that client as excessively costly (potentially due to regulatory pressure). In theory, banks could use the loophole of saying “well we have no problem with this client per se, but the modeled lifetime value of the client is less than the compliance cost of us maintaining the account”. In general, clients in “high risk” industries are costlier to maintain, due to stepped up KYC/KYB requirements and costlier flow-through monitoring for certain types of FBO accounts (for instance, if a crypto exchange wants to settle fiat transfers to clients). These costs can (and have been) imposed by regulators for certain industries. Who is to say, under this definition, whether the client was fired because they were donating funds to crowdfunding in Gaza or because the bank felt that that would entail additional burdensome compliance costs for maintaining the account? Regulators aiming to redline certain industries could in theory continue to make debanking certain clients into a (rational) business decision, rather than a discretionary one. My proposed solution, as we will cover, is to focus more on regulatory transparency and fairness, rather than zeroing in on the banks themselves. The EO does leave some wiggle room here, delegating more analysis to the Treasury, stating:

Within 180 days of the date of this order, the Secretary of the Treasury, in consultation with the Assistant to the President for Economic Policy, shall develop a comprehensive strategy for further measures to combat politicized or unlawful debanking activities of financial regulators and financial institutions across the Federal government, including consideration of legislative or regulatory options to eliminate such debanking.

This is important because it means the debanking remediations aren’t strictly set in stone just yet. So what might some of these solutions look like?

How to end debanking without overly burdensome intrusions into ordinary banking practices?

There is some precedent here, namely the discussion around Senator Cramer’s Fair Access to Banking Act. I am in agreement with Cato’s Nick Anthony that such legislation, while well-intentioned, is overly burdensome towards the banks themselves and doesn’t address the root cause of the issue. The general premise of the bill is that because banks are highly regulated, and close to being something akin to public utilities, they shouldn’t have the right to discriminate in their client selection (like power or water utilities). The bill requires that banks generally provide services to everyone in the area covered by the bank. But this isn’t how banks work today; they have different specialties and target client sets. Such a bill would, in my view, homogenize banks and treat them like undifferentiated public utilities, which they are not. As Nick says in the paper, and as I point out above, this approach doesn’t prohibit banks from derisking clients in cases where regulators have made it too costly to serve a certain client segment.

There are better solutions, focusing more on regulators. In this post written in December 2024, I laid out a few proposed resolutions for politically-motivated debanking. The first one is eliminating reputational risk from supervisory bank ratings, which has already been done at the major agencies, thanks to new appointees and political pressure. Senator Tim Scott’s FIRM Act also codifies this legislatively. The second is simply allowing more diversity into the banking sector by granting new charters. Thankfully, it appears that we are about to enter a new golden age of charters, as major bank regulators have indicated an openness to newly chartered banks. We have been in a massive deficit for 15 years since Dodd Frank, with only a handful of charters granted a year. New charters means more competition, so banks won’t be able to behave badly with impunity without being punished by the market. More specialist banks will likely emerge, in particular to serve underserved industries, like crypto.

Since the banking crisis of 2023, most specialist crypto-focused banks were either forcibly disappeared (Silvergate and Signature), or faced enforcement actions by their regulators (Customers and Cross River). (This also happened, in a more covert way, to the banks serving fintech firms.) The few that remained to serve the industry kept their heads down. Hopefully, a new wave of charters can create a new competitive dynamic whereby debanking isn’t as effective, since the market can simply adapt to incumbents choosing to exclude a sector.

But there’s two other proposed resolutions that I mentioned regarding debanking which are further strings that could be tugged on. The first is obscuring most regulatory communications by placing them under the veil of “confidential supervisory information” (CSI). This means that neither a bank nor their regulator(s) can publicly communicate the details of examination reports, supervisory communications, or internal regulatory memos, or ordinary correspondence between banks and their regulators. The claimed purpose of the CSI doctrine is to avoid sparking bank runs by releasing potentially troublesome regulatory reports, and to preserve an atmosphere of candor between regulators and banks. However, in practice, the CSI doctrine meant that banks cannot, under risk of civil and criminal penalties, release communications from their regulators. This is why exposing OCP2.0 was so challenging – virtually no one was willing to speak to me, certainly not on the record. The few clues we had were circumstantial or slowly revealed through FOIAs – and even those had to be compelled through litigation. Later document releases from the FDIC were helpful, but other important regulators like the Fed remain a black box and remain resistant to transparency regarding their possible role in debanking.

While we have had hearings in both houses of congress on the crypto debanking scandal, no congressional subpoenas have so far been leveled at the Fed. One way to address CSI could simply be to adopt a delayed-release cadence for CSI, as Austin Campbell proposed in his House testimony. For instance there could be a default waiting period of a year, or until after supervisory issues have been resolved. (Nick Anthony at Cato has also proposed legislative language that would pierce the veil of confidentiality in bank oversight.)

Additionally, a lot of regulator – bank communications are handed out through informal, verbal guidance (sometimes called “jawboning”). This further complicates the issue, since in many cases there simply nothing written down to scrutinize later. An easy fix would be requiring regulators to make important communications to bank leadership in writing. Together with the waiver on CSI, this would impose dramatically more transparency – and better behavior – on bank regulators.

If you’ll notice, none of my proposed fixes to debanking – eliminating reputational risk (done), reopening bank charters (underway), waiving CSI, or requiring regulatory communications in writing – involve actually compelling banks to serve specific clients or industries. This is because, even though banks are highly regulated, and a de facto arm of the government, we should still preserve their operational independence. As I said before, I am primarily concerned with political, not operational debanking. The societally optimal amount of debanking is not zero.

Banks need to be able to close accounts rather than being stuck serving unprofitable or excessively risky clients. If we were to simply create mechanisms through which regulators were more accountable and transparent in their dealings with banks, political debanking would likely end. No regulator would have the stomach to ask a bank to debank an industry if they knew their communications would be exposed later. All of these fixes address what I perceive as the real issue: regulatory pressure on banks, rather than banks themselves. Banks simply respond to incentives. The one thing you could maybe ask for banks to do themselves would be to simply communicate, in writing, and in a timely manner, why they are firing a client.

So while I think the Trump administration’s focus on debanking is warranted, care should be taken to ensure that the government is not coercively imposing requirements on the banks themselves. The focus should turn to the real culprit – unaccountable regulators. For now, there’s no current fear that regulators would use their pulpit to provoke waves of debanking, since Trump has instituted a kind of regulatory glasnost. But for this peace to endure, legislative codification should be sought. Democrats with a long-term outlook should be strongly supportive of this, even though they were the champions of banking exclusion leveled at crypto (“it’s not happening, but if it is, it’s a good thing”). As JD Vance has said, “turnabout is fair play,” so a more vengeful Trump administration could simply use the regulatory architecture established under Obama and Biden to debank disfavored industries of their own – perhaps abortion clinics, pro-immigration NGOs, liberal arts universities, and so on. But thankfully, the Trump administration has taken the view (even in Trump’s first term!) that debanking is a corrosive, unfair practice, and should be terminated.

Ultimately, a relatively light-touch legislative solution would be best and most enduring. Democrats will not support it if they view Congress as compelling the banks to serve clients indiscriminately, but they might consider signing on if a bill creates mechanisms asking regulators to be more impartial and transparent. (The solution to Alex Jones being debanked is not to demand that Chase platform him, but rather allow the newly-chartered Patriots Bank of Arkansas to choose to onboard him.) Democrats logically should seek to restrain the ability of regulators to use banks as political cudgels today, and Republicans should do it with an eye to the future. The Executive Order is a good start, but legislation must pass if we are to consign debanking to the dustbin of history.