President Trump Signs Executive Order to Combat Debanking in the US

On August 7, 2025, President Donald J. Trump signed an executive order titled "Guaranteeing Fair Banking for All Americans," directing federal banking regulators to eliminate "reputational risk" from compliance standards and to investigate instances where financial institutions may have denied services based on political or religious beliefs.

The executive order aims to prevent the practice known as "debanking," where banks close accounts or refuse services to individuals or businesses deemed risky, particularly those associated with certain political or religious affiliations. The order mandates a comprehensive review of past and current policies, with findings to be referred to the Department of Justice within 120 days. This move has garnered support from the banking industry, which aligns with the goals of fair access to services and regulatory relief.

Key Provisions of the Executive Order

The executive order directs federal banking regulators to remove references to "reputational risk" from their guidance and examination materials. This term has been used to justify denying services to certain clients based on perceived risks to a bank's reputation. Additionally, regulators are instructed to review past and current policies to identify instances where banks may have denied services based on political or religious beliefs. Findings are to be referred to the Department of Justice within 120 days, with potential penalties for violations. The Small Business Administration (SBA) is also required to notify financial institutions participating in its loan guarantee programs to make reasonable efforts to reinstate clients previously denied services due to unlawful debanking.

Background on 'Debanking'

"Debanking" refers to the practice where financial institutions close accounts or refuse services to individuals or businesses deemed risky. Critics argue that this practice has been used to discriminate against certain political or religious groups. For instance, former Kansas Governor Sam Brownback alleged that JPMorgan Chase closed an account linked to his organization, the National Committee for Religious Freedom, due to its religious affiliation. However, JPMorgan stated that the closure resulted from the organization's failure to provide requested information, not because of religious or political affiliations.

Reactions from Financial Institutions

Major banks, including JPMorgan Chase and Bank of America, have denied engaging in systemic bias or politically motivated account closures. They assert that decisions to close accounts are based on risk assessments and compliance with regulatory requirements, such as anti-money laundering laws. The banking industry has expressed support for the executive order's goals of fair access to services and regulatory relief. The Independent Community Bankers of America (ICBA) emphasized the importance of allowing banks to make individualized decisions about customer relationships based on sound risk management and legal compliance.

Regulatory and Legal Implications

The executive order directs federal banking agencies, including the Office of the Comptroller of the Currency (OCC), to revise supervisory materials to eliminate the use of "reputation risk" or equivalent concepts that could result in politically motivated or unlawful denials of financial services. Comptroller of the Currency Jonathan V. Gould stated that the OCC has already begun removing references to reputation risk from its handbooks and guidance documents. Additionally, the order mandates that federal banking regulators review past and present practices of the institutions they oversee and take appropriate remedial actions, including fines or consent decrees, against any institution that has policies encouraging debanking based on political or unlawful grounds.

Potential Social and Economic Implications

Banks may need to reassess their compliance and risk management frameworks to ensure alignment with the new directives, potentially leading to operational changes and increased scrutiny of account closure practices. The order aims to ensure that individuals and businesses are not denied banking services based on their political or religious beliefs, promoting inclusivity and preventing potential economic marginalization. The directive to eliminate "reputational risk" considerations may lead to a shift in how banks assess and manage risks, potentially affecting their relationships with certain industries or clients previously deemed high-risk.

Historical Context

The issue of debanking has been contentious, with previous administrations implementing policies that some viewed as targeting specific industries. For example, "Operation Choke Point," initiated during the Obama administration, aimed to discourage banks from providing services to certain businesses deemed high-risk, such as firearms dealers and payday lenders. Critics argued that this led to the unfair targeting of lawful businesses.

In summary, President Trump's executive order seeks to eliminate politicized or unlawful debanking practices by directing federal regulators to remove "reputational risk" from compliance standards and to investigate instances of service denial based on political or religious beliefs. While the banking industry has expressed support for the order's goals, financial institutions may need to reassess their compliance and risk management frameworks to ensure alignment with the new directives.