BPI Senior Fellow Andrew Bailey unpacks the issue of debanking in the Bitcoin Policy Institute’s latest three-part blog series.
Debanking is the exclusion of law-abiding enterprises or individuals from financial services because they are politically disfavored or otherwise distasteful. It is censorship or exclusion, not of speech, but of payments.
Debanking sometimes unfolds at the covert direction of regulators, as when officers of the Federal Deposit Insurance Corporation (FDIC) provide confidential supervisory information to banks. ‘Debank this individual, or industry, or firm’, such directives implicitly say — ’or else’. The price of non-compliance or pushback can include debilitating audits, or worse.
Customers whose accounts are blocked or closed as a result of regulator pressure are often caught unawares. Negotiation is often impossible, and sometimes a replacement banking partner is nowhere to be found.
Some have maligned allegations of FDIC-led debanking as conspiratorial or exaggerated; others say it is a complaint mostly from the political right (and thus, one is invited to infer, less than sincere or factual). But the evidence, including recently released guidance letters, suggests that critics were right all along. And, of course, the FDIC is not the only bank regulator whose powers have such chilling effects.
Regulator-led debanking in the modern era began with President Obama’s Operation Choke Point, using FDIC authority to target firearms dealers, pornography merchants, payday lenders, and other lawful but disfavored businesses. Under President Biden’s White House, Operation Choke Point 2.0 continued in a similar vein, with a special focus on digital assets. When President Trump — husband to Melania Trump, herself a victim of debanking — recently accused Bank of America of blocking conservatives from its services, its CEO blamed Biden-era regulators and over-zealous enforcement of anti-money-laundering and know-your-customer rules.
Despite that recent history and its plain political valence, the core phenomenon isn’t partisan. Senator Elizabeth Warren conceded that ‘Donald Trump was on to a real problem when he criticized Bank of America for its debanking practices’, though she blamed the bank itself, rather than its regulators. Other Democrats fear that a second Trump administration will debank abortion and gender clinics, left-wing non-profits, universities, or its other enemies. All agree that regulator-led debanking remains a potent political tool for those willing to use it.
Off-the-record governance by unelected bureaucrats undermines trust in institutions and hinders innovation. One can hardly complain about conspiracy theories when regulators conspire. And it's hard to build a business when you don't know if your bank will kick you out of the system, for secret reasons that can only be shared in public at tremendous cost. Indefinite orders to ‘pause’ lawful activity are no less damaging merely because they are impermanent; an industry with all its accounts on pause can’t do its work. The rule of law, finally, requires transparency and generality — rules that are promulgated clearly and fairly applied to all. Secret rule-making by unelected officers, even when targeting distasteful conduct or industries, is an affront to both.
In Part 2, we’ll see how a similar problem arises, not from regulator action, but from the behavior of private financial firms.
