U.S. Sen. Katie Britt, R-Ala., and the Senate Banking Committee Republicans, including Chairman Tim Scott, R-SC, have introduced the Financial Integrity and Regulation Management Act in an effort to combat the practice of debanking.
Debanking occurs when a financial institution closes an account they consider to be risky or which could incur reputational risk upon the institution. Today, concerns around debanking are largely tied to the cryptocurrency industry, with individuals and firms related to that industry claiming that they have been “debanked.”
As reported by The Hill, President Trump has set his sights on eliminating debanking, criticizing Bank of America CEO Brian Moynihan over alleged debanking practices at the World Economic Forum in January. Specifically, Trump accused Bank of America and other institutions of refusing to do business with conservatives.
“I don’t know if the regulators mandated that because of Biden or what,” Trump said. “But you and [JPMorgan Chase CEO] Jamie [Dimon] and everybody, I hope you’re going to open your banks to conservatives, because what you’re doing is wrong.”
Some Democrats also agree that debanking is an issue, although they disagree on who the practice really harms.
“Donald Trump was on to a real problem when he criticized Bank of America for its debanking practices,” Elizabeth Warren, the top Democrat on the Senate Banking Committee, said at a hearing last month. “Banks may be taking shortcuts when it comes to assessing risks, rather than investing the time and resources to identify true criminal risks and shutting down those accounts.”
However, Warren argued that the victims of debanking were really Americans with histories of overdraft fees, criminal records, or ties to the cannabis industry. She argued that the problem could be resolved by the Consumer Financial Protection Bureau, if it hadn’t been gutted by Trump and Department of Government Efficiency czar, Elon Musk.
Democrats like Warren aren’t the only ones calling on regulation to address issues related to debanking. Economists have noted that cryptocurrency-related debanking in particular could be curtailed by increasing regulation of the industry, which could combat its extreme instability and ease institutional concerns about risk.
However, Republicans like Senators Britt and Scott disagree, claiming that it is the regulatory agencies themselves that are behind debanking practices. To that end, the FIRM Act looks to prevent Federal banking agencies from issuing “new rules or guidance” that use reputational risk as a tool to gauge a financial institution’s safety and soundness.
“The practice of debanking is preventing people from accessing their American Dream. I’m proud to support legislation that would shield our banking system from subjective oversight and political agendas,” Britt said in an official press release praising the legislation. “Along with my colleagues, we will end this financial exploitation and ensure law-abiding citizens and businesses have access to financial services.”
“It is no secret that our financial regulators have becoming increasingly politicized over the last four years . . . When you’re prioritizing a social agenda or a political one, instead of actually ensuring that people have an opportunity and access to the American Dream, we’ve got to call that for what it is. And obviously, our large institutions play a vital role in our country and our banking system. But they need to stick to that—banking, not politics,” Britt also stated at a recent Senate Banking Committee Hearing.
In his own statement, Sen. Scott claimed that “federal regulators have abused reputational risk by carrying out a political agenda against federally legal businesses.”
“This legislation, which eliminates all references to reputational risk in regulatory supervision, is the first step in ending debanking once and for all,” Scott added.
It is worth noting that during the 2022 election cycle, Scott received nearly $30,000 in campaign contributions from the crypto industry.
It is expected that the 119th Congress will be extremely friendly to crypto executives and investors after the industry spent more than $130 million on the 2024 elections. The Blockchain Association, a pro-crypto lobbyist organization, has also endorsed the FIRM Act, signaling that the legislation might just be the first step in a larger crypto-friendly policy agenda led by President Trump.
