Shortly after taking office earlier this year, President Trump fired a warning shot at the World Economic Forum (WEF), calling out some of the world’s largest banks for refusing to serve customers based on politics. Regardless of political affiliation, all Americans depend on financial institutions to conduct their daily lives, operate businesses, and invest for the future. These services should be free from ideological discrimination.
Concerns over debanking are real and growing. Open efforts to restrict access to capital for so-called “carbon intensive” industries and firearms dealers demonstrate that banks and financial regulators are increasingly wielding their influence to punish disfavored industries. Worse, broad and vague notions of “reputational risk” including innocuous factors like negative media coverage have been forced upon banks and could be used by unscrupulous banks to justify debanking customers based on political, social, or religious views.
Federal regulations – often imposed arbitrarily by unelected bureaucrats – are the root cause of debanking. Under the Obama administration’s ‘Operation Choke Point’ and Biden administration’s ‘Chokepoint 2.0’cajoled banks into debanking customers, such as firearms businesses, through a reimagining of reputational risk policies. Entire industries and even some religious organizations have been debanked without cause. Threats of massive fines or even law enforcement action spur the closure of some accounts deemed problematic to reputational risk. And some bad actors have tried to use the existence of these regulations to target customers who espouse or further controversial views or causes.
This needs to change. Fortunately, this Republican-led Congress and the Trump Administration are already taking steps to avert this threat to individuals, businesses, and organizations.
Senate Banking Committee Chairman Tim Scott (R-SC) has made clear that “Congress needs to work to rein in and right-size the impacts of the Biden administration’s burdensome and arbitrary regulations” and has recently introduced the FIRM Act to curtail the weaponization of federal banking agencies. Just last week, the Office of the Comptroller of the Currency under President Trump’s leadership took similar steps to ensure regulators are focused on ensuring banks mitigate risk, not cast personal or political judgement.
Utilizing the critical and unique role of Congress in interstate commerce would protect their citizens from ideological discrimination in banking. In the absence of congressional action, states will understandably and justifiably attempt to act on their own.
Texas, among other states, is considering legislation like Senate Bill 949 to prohibit financial institutions from making decisions about their customers based on ideological or personal beliefs. However, it could well inspire other states to take the opposite approach and require customers that do not align with a political ESG agenda to be debanked.
Although well-intentioned, the myriad of state proposals percolating as Congress delays a solution risks creating a web of conflicting regulations and onerous new compliance requirements. These costs will be passed along to consumers, potentially reduce access to banking services to lawful customers, and expose businesses to frivolous lawsuits – undermining years of efforts by Texas lawmakers to make the state an even more business-friendly environment through tort reform and, more recently, the establishment of a new business court system.
A Texas law prohibiting ideological discrimination is of little solace to someone in California if that state adopts reputational risk standards requiring such discrimination. The obvious and urgent solution is congressional action on a broad national solution to debanking that pre-empts an impending mountain of new state-level regulatory compliance requirements. This will protect all Americans—even in “progressive” states—from exposure to politically motivated debanking. This builds on the National Bank Act, which has served as a bedrock of our national banking system, and largely prevents a cornucopia of contradictory regulatory regimes, which is bad for business and consumers alike.
Senator Scott and President Trump are taking action to end the weaponization of financial regulators under Democrat administrations. The author of Senate Bill 949 in Texas has even introduced a resolution urging Congress and the Trump Administration to “stop federal regulators from pressuring banks to unjustly debank customers,” which is the right path forward. These reforms will ensure consumers in Texas, California, and across the country benefit from a politically neutral banking system – without triggering a wave of conflicting state laws that make financial services less accessible and more expensive.
Congress and the Trump administration should be seeking the input of state leaders in pursuit of a fair, transparent banking environment to make sure all Americans can have access to fair and affordable financial services.
Joel Griffith is a Senior Fellow at Advancing American Freedom and previously served as the Director of the Center for State Fiscal Reform at the American Legislative Exchange Council (ALEC) and as a Research Fellow at the Heritage Foundation.