Debanking in America: The Role of Regulators
Speaking with Fox News Digital, Senate Banking Committee Chairman Tim Scott explored the issue of debanking, highlighting the role of banking regulators in the closing of American bank accounts.
Banking Regulation: A “Financial Swamp”
Wall Street insiders informed Fox News Digital that banking regulators, which operate under a maze of federal agencies, wield significant power over banking institutions. Chairman Scott criticized these unelected officials for their control over who gets a bank account or loan, likening the situation to a “financial swamp.”
The Impact of Operation Choke Point
The influence of banking regulators can be traced back to Operation Choke Point initiated by former President Barack Obama’s Department of Justice. This operation allowed regulators to flag bank accounts that could potentially harm the reputation of the banking institution. Furthermore, the Office of the Comptroller of the Currency (OCC) handbook implied that “negative public opinion” could be as damaging as a severe financial risk.
The Fallout: Unnecessary Account Closures
Due to these vague guidelines, numerous accounts have been closed, often for alleged political reasons or because regulators objected to the owners or the industries behind the accounts. Prominent victims of debanking include First Lady Melania Trump and her son, Barron Trump, whose banking woes became public following the events of January 6, 2021.
The FIRM Act: A Countermeasure
Chairman Scott, together with Representative Andy Barr, have put forth the Financial Integrity and Regulation Management (FIRM) Act. This legislation aims to remove the ambiguous language concerning reputational risk, thereby preventing future administrations from easily closing accounts based on their reputation.
Support From Wall Street and the Federal Reserve
Even as the legislation goes through the legislative process, Wall Street voices its disapproval of the power federal regulators have over the industry. Federal Reserve Chairman Jerome Powell has also shown support for discontinuing the reputational risk policy. Furthermore, JPMorgan Chase has confirmed its stance against closing accounts based on political or religious affiliation and called for clearer regulatory guidelines.
Steps Towards Regulatory Power Balance
While the FIRM Act signifies a step in the right direction, it does not fully restore the balance of power between regulators and banks. Outdated laws and rules, such as $10k maximum balance transfers and Suspicious Activity Reports (SARs), further limit a bank’s ability to serve its customers. To truly rein in regulatory power, Chairman Scott suggests “changing the playbook” and removing restrictive regulations.
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