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More than a year after Nigel Farage whipped up a fuss in Britain about debanking, a similar debate is brewing in the US. One catalyst has been venture capitalist Marc Andreessen, who complained in an interview with Joe Rogan in late November about investors, founders and their companies being kicked out of the banking system.
Andreessen had two gripes. First, he claimed banks were labelling people on the right with a “politically exposed” regulatory designation and subsequently cutting business ties with them. And second, industries that are frowned upon by the government or could threaten traditional financial companies, such as crypto businesses, are having their banking access taken away.
This built on recent complaints from Melania Trump that her bank terminated her account after the January 6 Capitol attack and declined to open one for her son Barron. On the right, such decisions have collectively been dubbed “Operation Choke Point 2.0”, a term borrowed from the Obama-era scheme that sought to limit banking access for controversial industries such as payday lenders.
There’s a good chance a second Donald Trump administration will take action here. David Sacks, the incoming artificial intelligence and crypto tsar, said there were “too many stories of people being hurt by Operation Choke Point 2.0” and that it needed to be examined.
And Brian Brooks, the comptroller of the currency in Trump’s first term, has suggested the new administration might revive his past attempt to introduce so-called fair access rules that would have would have required banks to have a financial reason for dropping a client. Those rules could not be finalised before the first term ended.
For some Trump supporters, debanking is part of a Deep State conspiracy But there are several reasons that might explain decisions. Bureaucracy is one. Since 2008, thousands of pages of new rules and billions of dollars in fines have meant banks are more risk averse about the sort of clients they take on. When a client relationship is ended, the communication from the bank tends to be frustratingly vague and terse, leading to speculation over the reasons.
Regulators swear that they do not tell banks which customers they should or should not take. But they can create chilling effects with their actions, as in 2022 when the Federal Deposit Insurance Corporation told banks they supervise to notify them about any crypto business they wanted to do. Was this a politicised move by the Biden administration averse to crypto or were regulators frightened about new avenues for money laundering and sanctions evasion? Either way it had an impact on banks.
“With . . . crypto becoming more intertwined with the formal financial system and banking sector, banks are petrified of running afoul of sanctions,” said Edward Fishman, a former US state department official and author of Chokepoints: American Power in the Age of Economic Warfare.
Another issue is that the complaints from venture capitalists and crypto companies come less than two years on from the failure of three mid-sized US banks that catered to these industries after liquidity problems: Silicon Valley Bank, Signature and Silvergate. When a bank closes, this can make it difficult for some clients to find new banks, particularly if they operate in an area that is a regulatory focus.
Twenty years ago, the industry’s problem child was Riggs Bank, a Washington-based lender that used to describe itself as ‘’the most important bank in the most important city in the world”. With a large business in serving embassies, Riggs became embroiled in a whole host of money-laundering issues and ended up having to be sold off. What happened to the embassy banking business? Few banks wanted to step in and take the risk.
Bank executives do make calls to curtail lending to certain industries that they take issue with. In the past, Citigroup threatened to cut off funding for some firearm retailers. JPMorgan Chase no longer finances new oil and gas drilling projects in the Arctic. Such decisions involve judgment. Is the lending right or wrong?
Even Brooks’ abandoned rule at the OCC allowed for banks to void accounts on reputational grounds if they quantify the risk more. But that is banking — assessing risk, reputational or otherwise.
joshua.franklin@ft.com
