“Debanking” Creates Legal Risk for Banks

In an opinion article published in the Wall Street Journal this week, Jay Rogers, President of Alpha Strategies Investment Consulting, argues that the recent elimination of reputational risk from US bank supervision has left banks legally exposed for past debanking decisions.

In April, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) issued a final rule removing reputational risk from bank supervision, which came into effect on June 9th. The following day, it was reported that the US Attorney's Office in the District of Columbia had subpoenaed JPMorgan Chase, Bank of America, and Wells Fargo over whether their account closings violated federal law. 

An OCC review had earlier identified nine sectors subjected to restricted access at the nine largest banks it supervises between 2020 and 2023, including oil and gas, firearms, payday lending, and digital assets. Comptroller Jonathan Gould called banks' debanking policies an “unfortunate” misuse of “their government-granted charter and market power.” The agency is now reviewing nearly 100,000 consumer complaints to identify further instances of political or religious debanking.

Rogers traces the practice to Operation Choke Point, the Justice Department's 2013 fraud-prevention initiative that, within two years, saw FDIC guidance pressure banks to drop entire industries. The mechanism, he argues, was consistent: using regulatory discretion to make disfavored activity expensive enough that private institutions did the discriminating themselves. The Supreme Court held unanimously in NRA v. Vullo (2024) that regulatory threats used to pressure institutions into dropping disfavored customers can state a First Amendment claim.

With the reputational-risk defense gone, Rogers argues, attention turns to bank boards. A board that adopted a compliance posture without independently documenting the underlying risk may have failed to exercise its duty of care, he contends, a theory that has never been tested in court. “Someone will test that theory now,” he concludes, “and my money is on the Justice Department to get there first.”