President
Donald Trump on Thursday signed an executive order mandating a probe into whether banks have discriminated against conservatives and certain industries like gun manufacturers and cryptocurrency companies, invoking the vast powers to go after entities that the Republican president alleges have discriminated against him and his allies.
The executive order deals with an issue known as “debanking,” which is when banks close accounts of individuals or declines to go into business with certain industries. Trump has accused
JPMorgan and
Bank of America of debanking him and his companies in the past, something both banks have denied.
Trump ordered federal bank regulators to make sure banks do not discriminate against individuals or companies for their political or
religious beliefs. He also ordered bank regulators to probe when banks may have allegedly discriminated and refer the cases to the
Department of Justice within 120 days.
The move could open banks to potential civil or criminal investigations, fines or other punishments.
When Trump and his party discuss debanking, they typically refer to banks closing the accounts of a person or company when they no longer want to do business with them. Banks usually say they close accounts or deny loans because the person or business is deemed too risky. The banking industry has long argued that it has a constitutional right to choose whom they go into business with, if it does not violate laws like the
Equal Credit Opportunity Act.
Th act, which was part of several pieces of legislation signed during the
Civil Rights Movement, bans banks from discrimination based on race, ethnicity, religion, sex and other protected statuses.
Another type of debanking is when government regulators tell banks to avoid doing business with industries or individuals.
Democratic President Barack Obama’s Department of Justice told banks to avoid doing business with “high risk” industries, which included payday lenders and firearms manufacturers.
This type of government-directed debanking is also known as reputational risk, where the historic reputation of an industry prompts banks to be more careful about banking and lending. Historic examples include entities who did business in high-risk countries, did business largely in cash or were repeatedly flagged by bank regulators.
Under the executive order, bank regulators will need to remove reputational risk from their metrics on how they measure a bank’s safety and soundness.
Banks, who have benefited from Trumps deregulation agenda and prefer simpler rules and regulations, have tried to strike a cordial tone with the administration, showing themselves as willing brokers who got caught up in a difficult political environment.
“It’s in banks’ best interest to take deposits, lend to and support as many customers as possible. Unfortunately, regulatory overreach, supervisory discretion and a maze of obscure rules have stood in the way as the (executive order) makes clear,” the major bank lobby groups said Thursday in a joint statement.
Conservatives have argued that reputational risk has become an umbrella term that allows banks to discriminate. The banking industry insists it does not actively debank and does not target specific industries or individuals. The banking industry itself, knowing that reputational risk has become liability, has already been removing any mention of reputational risk from their policies and procedures, particularly since Trump returned to the White House.
“Today’s Executive Order helps ensure all consumers and businesses are treated fairly, a goal the nation’s banks share with the Administration,” the banks said.
For Trump, the issue of debanking is deeply personal. Trump, in a wide-ranging interview on CNBC, earlier this week alleged that two major banks — JPMorgan and Bank of America — cut him off after he left office in 2021.
“They totally discriminate against ... me maybe even more, but they discriminated against many conservatives,” he said to CNBC.
Both banks have denied they debanked Trump.
“We don’t close accounts for political reasons, and we agree with President Trump that regulatory change is desperately needed,” said a spokeswoman for JPMorgan Chase in a statement.
Former bank regulators have argued that reputational risk, when used along with other metrics, can be a good measure of how well a bank is operating. Banks who end up doing business with companies with a history of violating laws, or violating anti-money laundering rules, can be at risk for failure.
Signature Bank failed in 2023 partly because of its exposure to cryptocurrency companies during a major downturn in crypto assets.
Credit Suisse in 2009 paid half a billion dollars to regulators for laundering money on behalf of Iran.
“Financial risk, and reputational risk, can be intertwined,” said Graham Steele, a former Treasury Department official who also served as a Democratic Congressional staffer on banking issues.
The Obama administration’s government-directed debanking has been a rallying cry for conservatives. It’s one reason why the cryptocurrency industry backed Trump in 2024. While the Biden administration did not explicitly force banks to debank the crypto industry, Democratic President
Joe Biden’s bank regulators did express some public concern about it, a move that was read by banks as a reason to steer away from crypto. That phrasing by the Biden administration was often referred to as “Operation Choke Point 2.0” by Trump and his allies.
Republicans have introduced legislation to cut down on alleged acts of debanking as well. Sen.
Tim Scott of South Carolina, chair of the Senate Banking Committee, has introduced legislation that would require bank regulators to no longer consider reputational risk as a factor in how they measure a bank’s health and risk profile.
“Debanking federally legal businesses and law-abiding citizens is un-American, and President Trump’s Executive Order is a critical step towards protecting Americans’ access to financial services,” Scott said in a statement.
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