Are banks really ‘de-banking’ customers? Here’s what to know

Andrew Ackerman

Web browser pioneer Marc Andreessen recently made waves with claims that Washington regulators are “de-banking” people - that is, directing banks to cut off accounts belonging to cryptocurrency executives, tech leaders and political enemies of the Biden administration.

The claims also popped up throughout the election cycle, including from Donald Trump.

Do banks really de-bank their customers? Sometimes - if customers are engaged in questionable or unusual behavior that’s not consistent with “safety and soundness.” That’s always been the case.

But is there a concerted top-down initiative by the Biden administration to de-bank purely according to politics as Andreessen describes it? Experts say there’s no evidence for that.

Here’s what to know about “de-banking.”

What’s the accusation?

Andreessen appeared on Joe Rogan’s podcast and made lots of claims over a three-hour interview, including a suggestion that regulators appointed by President Joe Biden have spent the past four years conscripting banks to target the administration’s political opponents. Andreessen said about 30 founders of tech start-ups have been “de-banked.” He called the project “Operation Chokepoint 2.0.”

He separately attacked the Consumer Financial Protection Bureau at several points, though in ways that are tough to square with reality. He falsely suggested it was part of the administration’s de-banking efforts and described the CFPB as “Elizabeth Warren’s personal agency.” While the Democratic senator from Massachusetts is credited with coming up with the idea for the agency and worked to set it up before she was elected, she has never actually led the bureau. He later walked back some of his remarks.

Does Washington tell Wall Street whom to do business with?

No, not really. Regulators don’t tell banks whom they can and cannot provide services to. They do tell them what to look for - potentially illegal activity - and enforce rules requiring that banks know whom they are doing business with and what those customers are doing. Banks determine on their own if it’s profitable to bank with someone or a company engaged in high-risk but lawful activities.

What’s Operation Chokepoint?

It’s a reference to an initiative that started during the Obama administration to ferret out fraud, particularly in the payday lending space. It involved officials at the Justice Department and some bank regulators. Republicans criticized the initiative as an inappropriate campaign to curtail banks’ work with lawful businesses.

Operation Chokepoint remains a political talking point among conservatives when criticizing regulatory agencies. They frame it as campaign by Democrats to abuse their power against conservatives, said Dru Stevenson, a law professor at the South Texas College of Law, who has studied the issue. “It is more myth than reality,” he said.

Is Chokepoint 2.0 real?

Big players at financial and tech start-ups definitely have a perception that bank regulators are out to get them. Top banking regulators’ stated scepticism about the cryptocurrency industry, coupled with a crackdown on crypto from the Securities and Exchange Commission, have fuelled a widespread belief that the administration is hostile to crypto.

Crypto can be a vehicle for money laundering by terrorist groups such as Hamas, Russian arms dealers and other bad actors, regulators say. And some recent bank blowups appear to have justified regulators’ concerns over the fast-growing but high-risk industry. Two of three banks that failed in March 2023 - Silvergate and Signature - specialized in crypto but failed abruptly when they didn’t appropriately manage the risks, said Steven Kelly, associate director of research at the Yale Program on Financial Stability.

“It’s a volatile sector that is inconsistent with banking,” he said.

Are bank regulators hostile to tech firms?

That’s tough to argue, too, because tech companies benefited from the way Washington responded to one of the biggest recent bank failures.

That’s what happened when Silicon Valley Bank (SBV) collapsed last year. It was the third bank to fail in March 2023 and, at the time of its collapse, the second-largest bank failure in US history. The bank catered largely to tech companies. In a classic bank run, these companies rapidly bolted for the exits when SVB got into financial trouble following a rise in interest rates, which in turn caused the bank’s holdings of long-term bonds to decline in value.

Though more than 90% of SVB’s depositors were “uninsured,” or above the typical $250 000 (R4473825) federal deposit insurance cap, they were all made whole after the Biden administration and the Federal Reserve determined the bank’s failure posed a risk to the financial system. Washington’s steps to contain the fallout from SVB’s failure meant even tech and crypto companies with billions deposited at the lender wouldn’t have to take haircuts on any of their money. Notably, regulators did not extend that same safety net to a much smaller group of less-connected depositors at a small Oklahoma bank that failed in October.

What else are people saying?

In her recent memoir, Melania Trump says that she was “shocked and dismayed” to learn that her long-time bank decided to close her account and also that it refused to allow her son Barron to open a new one. “This decision appeared to be rooted in political discrimination, raising serious concerns about civil rights violations” she wrote. The excerpt was highlighted by Andreessen, and amplified by hedge-fund billionaire Bill Ackman, on X.

Trump provides no other details about the experience but characterises it as part of a “cancel mob” plaguing society at large, according to her book. A spokeswoman for the Trump campaign didn’t respond to a request for additional details.

Will things change in Washington?

A bipartisan group of lawmakers is sympathetic to concerns raised by people like Andreessen, potentially enough to revive policy efforts aimed at ensuring “fair access” to banking services for all types of legal but politically controversial businesses.

The Office of the Comptroller of the Currency quickly finalized such a regulation at the end of Donald Trump’s first term in the White House - fuelled by concerns that the oil and gas industry was unfairly denied financing by large banks. The rule was opposed by big banks and put on ice at the start of the Biden administration.

The president-elect himself has said he wants to see new restrictions. “We’re … going to place strong protections to stop banks and regulators from trying to de-bank you,” Trump said at a campaign rally early this year.

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