The significant influence exerted by unelected federal banking regulators over access to financial services in the United States has become a central point of contention. Lawmakers and industry leaders are increasingly vocal about the perceived power imbalance between regulatory bodies and commercial banks. Critics contend that this broad authority, wielded by numerous federal agencies, frequently compels financial institutions to conform to sweeping “guidance” or even informal directives. This often leads to what some describe as politically motivated account closures, or “de-banking,” affecting individuals and businesses alike. Such practices raise critical questions regarding transparency, fairness, and the potential for regulatory power to be weaponized against specific sectors or ideologies, including the rapidly expanding cryptocurrency industry.
- Unelected federal banking regulators hold significant sway over financial services access in the U.S.
- The practice of “de-banking,” or politically motivated account closures, is a growing concern.
- Operation Choke Point introduced the concept of “reputational risk” as a basis for flagging bank accounts.
- The Financial Integrity and Regulation Management (FIRM) Act has been introduced to legally prohibit reputation-based account closures.
- Major Wall Street banks, including JPMorgan Chase and Bank of America, confirm experiencing regulatory pressure to close accounts.
The Evolution of Regulatory Oversight and “De-banking” Concerns
The origins of this expanded regulatory power are often traced to initiatives such as Operation Choke Point, which was launched during the Obama administration. A core component of this operation allowed regulators to flag bank accounts deemed to pose a “reputational risk” to banking institutions. Furthermore, language within the Office of the Comptroller of the Currency (OCC) handbook suggested that “negative public opinion” could be weighted as heavily as a severe financial risk. These ambiguously defined guidelines reportedly resulted in the closure of numerous accounts across the United States. Observers, including Senate Banking Committee Chairman Tim Scott, have suggested that many of these closures stemmed from political considerations or regulatory disfavor towards specific industries or account holders.
Concrete examples highlight the tangible impact of these policies. Former First Lady Melania Trump documented in her memoir the closure of her long-standing bank account, while her son, Barron Trump, was subsequently unable to open an account at the same institution following the events of January 6, 2021. Former President Donald Trump himself has publicly acknowledged the pervasive control regulators wield over banks, observing that when an administration instructs regulators to “make life impossible” for financial institutions, they are demonstrably effective in doing so.
Industry Responses and Legislative Reforms
In response to these escalating concerns, the Trump administration took initial steps to redact the controversial “reputational risk” language from regulatory frameworks. Further legislative action is now actively underway to codify this removal and prevent future administrations from easily reinstating such vague standards. Senator Tim Scott and Representative Andy Barr have jointly introduced the Financial Integrity and Regulation Management (FIRM) Act, a bipartisan effort aimed at solidifying the prohibition of reputation-based account closures. Representative Barr has asserted that “woke regulators” have historically targeted businesses based on their political affiliations, citing instances involving cryptocurrency firms, firearms manufacturers, and energy businesses. Even Federal Reserve Chairman Jerome Powell has publicly supported dropping the reputational risk policy, stating it is “the right thing to do.”
Perspectives from Financial Institutions
Wall Street institutions have also offered their perspectives on the considerable leverage held by federal regulators. A spokesperson for JPMorgan Chase confirmed the firm’s policy against closing accounts based on political or religious affiliation, simultaneously advocating for a more transparent regulatory framework to mitigate unnecessary account closures. Jamie Dimon, CEO of JPMorgan Chase, has commented that de-banking frequently arises from bankers’ fears of government repercussions if they inadvertently engage with a problematic entity. Similarly, Bank of America CEO Brian Moynihan noted the constant presence of “100-plus regulators in our building every day,” indicating that America’s second-largest bank is often “told by authorities to close accounts.”
Beyond Reputational Risk: The Broader Regulatory Landscape
While the FIRM Act represents a significant stride towards rebalancing power, the issue extends beyond merely reputation-based policies. Financial institutions also contend with limitations imposed by outdated laws and regulations, such as the $10,000 maximum balance transfer rule and Suspicious Activity Reports (SARs), which can impede their capacity to serve customers efficiently. Lawmakers like Senator Scott emphasize the necessity for a comprehensive overhaul of the entire regulatory “playbook.” He asserts that regulators possess the inherent authority to initiate the process of eliminating these outdated and restrictive guidelines, thereby fostering a more balanced, transparent, and responsive financial ecosystem.
Jonathan Reed received his MA in Journalism from Columbia University and has reported on corporate governance and leadership for major business magazines. His coverage focuses on executive decision-making, startup innovation, and the evolving role of technology in driving business growth.