What to know about the fight over 'debanking'

“Debanking” has become an increasingly popular talking point for Republicans in recent weeks, as they take aim at Biden-era regulators who they accuse of boxing conservatives and cryptocurrency firms out of the financial system.

Despite its newfound traction, debanking isn’t an entirely new issue, with Republicans airing grievances over the issue since the Obama administration.

Here’s what to know about debanking and the latest fight:

What is debanking?

Debanking is the closure of bank accounts that financial institutions consider risky, often with little notice or explanation.

Concerns about debanking first arose during the Obama administration with “Operation Choke Point” — a controversial Justice Department initiative that discouraged banks from working with certain “high-risk” businesses, such as payday lenders and firearm retailers. The Justice Department officially ended the program in 2017.

With the rise of digital assets in recent years, numerous individuals and firms associated with the cryptocurrency industry say they have been debanked — a trend they have labeled “Operation Choke Point 2.0.”

These concerns were amplified in November, when venture capitalist Marc Andreessen asserted on “The Joe Rogan Experience” that he knew 30 tech founders who had been debanked.

The issue appears to have resonated with President Trump, who tore into Bank of America CEO Brian Moynihan over debanking allegations at the World Economic Forum last month. The president accused Bank of America and other financial 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.”

Dimon had previously weighed in on debanking, suggesting there should be “far cleaner lines about what we have to do and we don’t have to do," while insisting that his bank has never dropped a client for political reasons.

The banking industry similarly responded to Trump’s comments by arguing the problem lies with the agencies supervising them.

“We agree with President Trump’s diagnosis that much debanking occurs as a result of an anti-money laundering and ‘reputational risk’ regime administered by the federal banking agencies where certain types of customers are designated as ‘high risk,’” Bank Policy Institute President and CEO Greg Baer said in a statement at the time.

Who’s to blame?

The key disagreement between Republicans and Democrats over debanking centers on who is to blame.

According to Democrats, large banks are the source of the problem. Sen. Elizabeth Warren (D-Mass.) said Wednesday that her staff had identified thousands of debanking-related complaints over the past three years, more than half of which were lodged against four major banks — Bank of America, JPMorgan, Wells Fargo and Citibank.

“Donald Trump was on to a real problem when he criticized Bank of America for its debanking practices,” Warren, the top Democrat on the Senate Banking Committee, said at a hearing Wednesday.

“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,” she added.

She cited stories of Americans being debanked as a result of overdraft fees, criminal history or ties to the cannabis industry.

Warren pointed to her brainchild, the Consumer Financial Protection Bureau (CPFB), as a potential solution and criticized Treasury Department Secretary and acting CFPB Director Scott Bessent’s decision to halt all work at the agency.

Republicans, on the other hand, view federal regulators as the problem, accusing the previous administration of targeting industries it opposed, like crypto.

“Some of us are interested in having the regulatory oversight actually be identified as the problem here, versus suggesting that the big bad banks are suddenly doing this all on their own,” Sen. Mike Rounds (R-S.D.) said at Wednesday’s hearing.

They touted a newly released tranche of documents from the Federal Deposit Insurance Corporation (FDIC) about the agency’s communications with banks about crypto-related activities during the Biden administration.

The document dump built on the prior release of a series of letters that the FDIC sent to 24 banks in March 2022, asking them to “pause all crypto-asset related activity.”

Senate Banking Chair Tim Scott (R-S.C.) pointed to the documents Wednesday as evidence that Biden-era federal regulators had pressured banks to cut off the crypto industry.

“These and other actions sent the message to banks that it would be extraordinarily difficult, if not impossible, to move forward with crypto-related activities,” Scott said.

While some of the accusations that GOP lawmakers have leveled against the Biden administration may be accurate, regulators could also have legitimate concerns about the risks associated with the crypto industry, said Ian Katz, managing director at Capital Alpha Partners.

“It's also possible that in some of the cases, the regulators were just doing their job and were legitimately concerned about the risk the banks were taking on doing business with crypto firms,” he told The Hill.

“Crypto, like a lot of industries, but maybe crypto more than most, you have some very responsible, legitimate firms, but you have some that are more dubious or we just don't know that much about,” Katz added.

He also noted that debanking offered Republican lawmakers an easy target as they kick off a new Congress.

“It is also a very appealing way for Republicans to beat up on Biden regulators that they didn't like,” Katz said. “Again, I'm not suggesting that there's not an issue there, but it does coincide with the Republicans' interest in bashing the Democratic regulators.”

Both the Senate Banking Committee and House Financial Services Committee held hearings this week on debanking, and House Oversight and Accountability Chair James Comer (R-Ky.) announced last month that he was investigating the issue.

What’s next?

While it’s unclear where exactly lawmakers will take debanking next, Nicholas Anthony, a policy analyst at the Cato Institute’s Center for Monetary and Financial Alternatives, suggested it could represent an opening for legislation.

“I think a lot of the senators yesterday realized that it was a mistake to not create legislation that established more formal barriers to what regulators are able to do when it comes to pressuring financial institutions,” he told The Hill.

He pointed to the Bank Secrecy Act, arguing that Congress should update the law to remove certain confidentiality requirements that “kept this all in the dark.”

Sen. Kevin Cramer (R-N.D.) on Wednesday touted his own legislation, the Fair Access to Banking Act, which would penalize banks and credit unions for refusing to do business with certain individuals or industries.

However, Katz cautioned that the bill may face pushback, even from within the Republican Party, for limiting banks' discretion over whom they choose to do business with.

“I think lawmakers know how difficult it is to get legislation through Congress,” he added. “And while they keep trying, I think it's also good and appealing for them to have red meat issues that get some headlines, get some attention, get the party riled up. Because it's hard to legislate. Even with your best intentions, it's very hard to legislate.”