Banks in a bind as regulators operationalize debanking order

• Key insight: President Trump’s executive order on debanking is beginning to show up in agency guidance, spurring concerns among industry watchers that the order may result in arbitrary enforcement or unwelcome risk-taking.
• Expert Quote: “I’d like to pretend that this is policy, not performative politics,” said Todd Baker, a fellow at Columbia University’s Richman Center and principal at Broadmoor Consulting. “But it ain’t.”
• Forward look: While measures coming from agencies so far are more narrowly focused than the executive order, how those measures are enforced could determine how much of a challenge they pose to banks.

As banking regulators begin to put the president’s August executive order on “debanking” into practice, several industry observers fear the effort to root out instances of politically motivated debanking is effectively telling banks that they have to take on risk whether they like it or not. 
The Executive Order, which President Trump signed in August, orders banking regulators to examine financial institutions for any internal policies that encourage debanking — that is, when a bank unilaterally cuts ties with a customer — based on a customer’s religious or political affiliations. The order also directs regulators to review past supervisory or complaint data and refer past instances of debanking based on religion to the Department of Justice.

On Monday, the Office of the Comptroller of the Currency issued a bulletin to banks it supervises warning that banks found to have engaged in such debanking activity may have that activity factor into supervisory decisions, including branch openings, changes to executive leadership and Community Reinvestment Act reviews.

While the White House has framed the order as an effort to protect conservatives from undue denial of service by financial institutions, critics argue the effort is rooted in Trump’s personal grievances and financial interests, as there is no legal basis to force banks to serve anyone — let alone customers they view as risky.

Joseph Lynyak III,  a partner at the law firm Dorsey & Whitney, says he thinks the concept of debanking as portrayed by the administration is a “red herring,” since banks have no legal obligation to serve any particular customer under federal banking law. Just as the infamous Obama-era Operation Choke Point was an arbitrary and anti-free market initiative to pursue a political agenda, he argues anti-debanking efforts are equally onerous. 

“There’s no requirement of you doing business with anybody, and to be overlaying an obligation to do business is a very radical approach, which, while it’s been tried a few times — basically encouraging people not to do business with someone — it’s contrary to an open market approach,” Lynyak said. “Limiting the ability of banks to make decisions as to the risk they wish to take on and linking an obligation to do business even with a risk issue, I think, is totally inappropriate.”

Todd Phillips, a Roosevelt Institute fellow, Georgia State University professor and former FDIC attorney, says the “debanking” debate as portrayed by the Trump administration comes conspicuously close to assuming that every American has a right to a bank account with the bank of their choosing — an issue that has typically been raised by more liberal factions. But a more immediate concern is that “debanking” as a term is ill-defined, and as such could allow regulators to use the term as a cudgel to carry out the President’s political agenda.

“I don’t even know what illegitimate de-banking is, because banks make these decisions based on their own finances and their private sector business decisions,” Phillips said. “The banking system is of the utmost importance to engaging in the economy, but we haven’t yet had a national conversation about whether every American or every American company should have a right to a bank account. There’s no law on the books around that yet.”

There is no authority requiring banks to take on customers they consider risky, and the proposed “debanking” measures verge on dictating winners and losers in the economy, something that is “just simply not legal,” Lynyak said. 

“It’s not legal in and of itself, and actually sounds terribly socialist,” Lynyak said. “For instance, where do you get the authority to take enforcement action against [accused] banks? It’s not an unsafe and unsound practice, as long as you are not discriminating against somebody in accordance with the anti-discrimination laws. [Banks] simply don’t have to do business with someone.”

Various federal laws ban discrimination in public accommodations if that discrimination is based on race, sex, religion, national origin, age or disability.

The rise of debanking

Banks dropping customers without warning or explanation is not a new issue, but the current contours of the debate stem from an appearance by tech billionaire investor Marc Andreessen’s appearance on the Joe Rogan Experience podcast in late November 2024. During the interview, Andreessen alleged that the Biden administration was orchestrating a campaign he dubbed “Operation Choke Point 2.0.” In this case, Andreessen argued, the administration was pressuring banks to deny services to a new round of politically disfavored businesses, particularly in tech and crypto. 

The Trump administration seized on the issue and ran with it. Trump himself called out Bank of America CEO Brian Moynihan in January at the World Economic Forum meeting in Davos, Switzerland in January for allegedly not allowing conservatives as customers.

Quantifying the issue — learning how many more customers were dropped across the industry and for what reasons — is a challenge for several reasons, not least of them because banks’ decisions to drop customers, may not be comparable from bank to bank and are considered confidential supervisory information.   

Todd H. Baker, senior fellow at Columbia University’s Richman Center and managing principal of Broadmoor Consulting, said push to stamp out debanking seems less about risk management than political theater. 

“I’d like to pretend that this is policy not performative politics,” Baker said. “But it ain’t.”

Baker pointed to a similar episode in the UK involving Conservative member of Parliament Nigel Farage, whose private bank account with English bank Coutts was closed in 2023 after he failed to meet the bank’s eligibility criteria and was flagged internally for holding “beliefs and values” misaligned with the firm. Farage spun the denial of service into a populist rallying cry, a playbook that Baker says Trump has now imported into U.S. politics.

“This is an entirely manufactured issue ostensibly around politicized risk management practices, but really about Trump’s ego and MAGA fundraising,” Baker said. “If regulators, spurred by aggrieved MAGA ‘informants,’ can find examples of what they don’t like in the past — and they will be looking for it — they will make a huge public deal out of it and ‘punish’ the bank in question ‘pour encourager les autres.’ It will be arbitrary in terms of who gets looked at and what gets found.

“For any senior bank regulator, being ‘tough’ on this is the price of keeping your job in MAGA world, so that’s what they’ll do,” Baker added.

Phillips said the administration’s debanking push resembles attacks made by the administration earlier this year against law firms and universities.

“The first big question in my mind is, is this something that is effectively President Trump’s attack on universities and his attack on law firms?” Phillips said. “I don’t know, we have yet to see kind of how this plays out, but … it feels similar,”

The Bank Policy Institute, when reached for comment, declined to weigh in. The group has previously expressed support for preventing wrongful denial of banking services. 

In the case of the OCC bulletin form earlier this week, Phillips says the implementation so far is more measured and narrowly focused than the executive order itself. But that discipline could be tested if and when the regulators begin issuing enforcement actions based on the order or implementing guidelines. 

“We really don’t know how things are going to shake out,” Phillips said. “Banks have been complaining for years that bank regulators have too much power, that it is arbitrary and I think one thing we have to see here is, are the OCC and the other regulators going to undertake this debanking exercise with the arbitrariness that the industry fears?”

Banking crypto and playing favorites

The stakes are further complicated by President Trump’s personal financial interests. Trump has a direct connection to the stablecoin issuer BitGo, which issues USD1, a stablecoin he and his family helped launch. Trump could theoretically direct allies like Jonathan Gould to favor BitGo or disfavor its competitors, giving the company preferential treatment while putting other firms at a disadvantage, says Phillips.

“Donald Trump can tell Jonathan Gould to roll out the red carpet for BitGo, give BitGo everything that they want and bring down the hammer on everyone else in order to give BitGo a leg up, and the banks have to deal with that,” Phillips said. “I don’t know that he has, but the fact that he could is hugely problematic, and that was not an issue during the Biden administration.”

Phillips estimates in a recent paper that the Trump family could make upwards of $13 million a year on his stablecoin he and his family co-launched earlier this year.

Lynyak says forcing banks to do business with crypto companies isn’t just against the spirit of free enterprise, but could also be risky to the broader economy. 

“There is such an enormously high risk involved in a bank engaging in many crypto-related activities,” Lynyak said. “It defies belief that the banking regulators would be encouraging this type of behavior.”

Banks would likely prevail in court if they challenged the administration’s “debanking” efforts, but mounting that challenge brings with it another set of risks, Phillips said. Banks have historically been reluctant to sue their regulators out of fear that it could sour the bank-supervisor relationship in other matters. 

“There are principles in the Constitution that any defendant needs to be made aware of what the law is before they can be accused of violating it, and no one, before a couple months ago, ever thought that banking laws prohibited what banks are being accused of doing,” Phillips said. “I think they would win, but challenging this [would mean] you are challenging your supervisor. So if I was a bank, I would be very concerned about the retrospective and arbitrary nature of what might be happening, but I also don’t think I would sue, because I wouldn’t want to piss off my regulator. They’re between a rock and a hard place here.”

For now, Baker says banks will need to change their policies to avoid the appearance of debanking. Given the wide variety of potential risks, that will require particular attention and care from firms’ Bank Secrecy Act and anti-money laundering staff. Ultimately, staying out of the debanking gauntlet will require careful consideration of whether banking a risky customer or angering the administration pose the greater risk.

“[At what point] is some MAGA or [Make America Healthy Again] guy selling useless dietary supplements, ivermectin, or copper health bracelets to old people using deceptive tactics more risky than running the ‘debanking’ gauntlet?” Baker asked rhetorically.