Loading
What do Barron TrumpKYCAMLCFTFATFPEPPEPFATF Your browser does not support the element., son of the president-elect; some Islamic charities in Britain; and America’s legal cannabis industry have in common? This is not a set-up for a bad joke. Rather, all have been at the sharp end of a rise in “debanking”, having lost or been refused access to the services of commercial lenders.In a recent memoir, Melania Trump says that she and her son suffered this fate after the January 6th insurrection. Marc Andreessen, a venture capitalist and supporter of Donald Trump, complains that dozens of tech and cryptocurrency executives have been debanked in recent years. He argues that such decisions represent political discrimination. Mr Trump’s return to the White House on January 20th is likely to lead to conflict between the new administration, regulators at home and abroad, and the lenders they oversee.A low tolerance among bankers for risk—whether commercial, legal or reputational—often lies behind the decision to refuse service. In turn, this low tolerance is produced by an alphabet soup of regulatory acronyms. Know-your-customer () standards require banks to monitor client identities as part of their anti-money-laundering () measures and efforts to counter the financing of terrorism (). Guidance comes from the Financial Action Task Force (), an international anti-money-laundering body. The task force prods banks to monitor politically exposed persons (s), a nebulous category of people judged to have some link to the functions of the government, since these individuals and their families may pose greater risk of corruption and embezzlement. At first, banks were asked only to focus on foreign s. But in 2012 the added domestic political figures to the list.Banks are fearful of enforcement action, making compliance a booming industry. According to the Bank Policy Institute, an industry group, the number of full-time American bank employees dedicated to compliance rose by 62% between 2016 and 2023, three times as fast as overall hiring. Bosses now report that they spend 42% of their time on compliance issues, up from 24% seven years earlier. By one estimate, the industry globally spends more than $200bn on compliance each year. In this context, overzealous debanking is inevitable. Even if it is not motivated by political animus, the critics have a point.Some other complaints are more dubious. Crypto is a target less because of the politics of its executives and more because it is rife with money-laundering and financial crime. Last year digital-asset companies made up almost 70% of the $6.6bn in global anti-money-laundering fines catalogued by Fenergo, a financial-software firm, in large part because of a $4.3bn fine levied on Binance, an exchange.What might Mr Trump do? Towards the end of his first term, the Office of the Comptroller of the Currency proposed a rule to prevent banks with over $100bn in assets from discriminating against customers owing to unquantifiable risks. This was nixed by the Biden administration, but could be revived. Republican states have since continued in the same vein: Florida and Tennessee have banned banks from denying service based on political affiliation or a customer’s line of business.Such a change would be a headache for lenders. Greg Baer of the Bank Policy Institute described the rule as “hastily conceived and poorly constructed” when it was first proposed. Compliance chiefs are aware that a subsequent administration could reimpose the sort of regulations that lead to debanking. From their point of view, why bother with such a change if it will just be reversed? Others, reasonably, contend that preventing political discrimination is worth a bit of hassle.
