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Politicized Debanking
Many banks are enthusiastic about the new administration’s deregulatory moves after years of burdensome regulations that ramped up under President Joe Biden.
But the regulator for nationally chartered banks announced this week it would review banks for current policies or past instances of politicized “debanking” when considering licensing applications or Community Reinvestment Act scores. “Deregulation is a joke,” said Peter Weinstock, an attorney with Hunton Andrews Kurth, while attending Bank Director’s Bank Board Forum this week in Marco Island, Florida. “It’s always changing regulation.” He says the same agencies that pushed banks to get rid of some customers are now planning to penalize them for doing so, but he expects the agencies to focus on the big banks. Another lawyer who asked not to be named said regulators are “looking for scalps and will find some.”
Indeed, the Office of the Comptroller of the Currency, which issued the bulletin Monday, said it had initially asked the nine largest nationally chartered banks for information about their debanking activities. The agency said it was responding to President Donald Trump’s executive order on debanking. It defined the term as cutting off the accounts of customers for religious or political reasons or on the basis of not liking a customer’s lawful business activities “for political reasons.” Crypto companies, conservatives and Trump himself have accused banks of closing their accounts in the past for political or religious reasons. Weinstock said banks should document when they “derisked” customers, meaning ended accounts when certain customers increased the bank’s risk profile.
Other lawyers attending the event in Florida said banks found to have engaged in politicized debanking could run into trouble getting approval for a host of activities. The bulletin mentions licensing applications for chartering, mergers and acquisitions, branching, changes of control and even changes to directors and senior executive officers. A bad CRA score could also hinder a bank’s ability to make an acquisition.
Meg Tahyar, head of the financial institutions group at Davis Polk & Wardwell, said, “Banks would be wise to create policies and procedures around when an account might be closed and why.” Kevin Toomey, a partner and the head of financial services practice at Arnold & Porter, said it will be critical for banks to document when they turn down a client. Toomey said it was important to train staff in how they respond to clients when rejecting them. “It’s a big, big issue,” he says.
• Naomi Snyder, editor-in-chief for Bank Director
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