Trump changes tone on debanking, lays more blame on banks

Bloomberg

WASHINGTON — The Trump administration upped its rhetoric on debanking again on Tuesday, this time targeting banks themselves rather than their regulators.

President Donald Trump once again took aim at two of the country's largest banks, JPMorgan Chase and Bank of America, and their chief executives, for what he framed without evidence as discrimination against him on political grounds.

"The banks discriminated against me very badly," Trump said during a Tuesday interview on CNBC, claiming that JPMorgan had dropped him as a customer and Bank of America wouldn't serve him. "Banks are not afraid of anything but a regulator," he added later.

Just twelve hours earlier, The Wall Street Journal reported that the White House was getting ready to issue an executive order telling bank regulators to investigate whether firms are denying banking access to both crypto companies and political conservatives.

The executive order and Trump's comments mark an escalation in the way that the Trump administration is talking about debanking as an issue, experts say.

"If I was a banker, I would be very concerned about this, because you are trying to make business decisions based on what is best for your firm, and the government is coming here telling you how to run your business, how to spend your money," said Todd Phillips, a bank law professor at Georgia State University.

Debanking has been a major issue for the Trump administration since the president took office in January. Days into his presidency, Trump railed against Bank of America and JPMorgan for alleged debanking practices. Congressional committees and regulators have also made moves to limit the role of reputational risk in supervisory examinations.

The regulator responsibility narrative

Banks have publicly welcomed these changes, and have fought behind the scenes to keep the White House focused on the regulators rather than themselves.

"The heart of the problem is regulatory overreach and supervisory discretion," said the Bank Policy Institute in a statement. "The banking agencies have already taken steps to address issues like reputational risk, and we're hopeful that any forthcoming executive order will reinforce this progress by directing regulators to confront the flawed regulatory framework that gave rise to these concerns in the first place."

Bankers continued to try and shift the narrative in that direction throughout the day.

"The president is after the right thing," said Bank of America CEO Brian Moynihan in a CNBC interview Tuesday afternoon. "We've got to stop the regulators behind the scenes whipsawing back and forth and forcing our companies, and companies like ours to make decisions."

He added that his bank and others have been working with the administration to "get these rules balanced." Moynihan cited guidance around anti-money laundering, Know Your Customer, reputational risk and the Bank Secrecy Act as some of the drivers of certain "decisions."

JPMorgan and Bank of America have repeatedly denied allegations that they have offboarded customers due to political beliefs.

"We don't close accounts for political reasons, and we agree with President Trump that regulatory change is desperately needed," said JPMorgan spokeswoman Trish Wexler in a Tuesday statement. "We commend the White House for addressing this issue and look forward to working with them to get this right."

Banks could take blame and blows

The executive order, as reported by the WSJ, would target banks directly and would order regulators to investigate allegations of debanking, potentially including consent orders or monetary penalties for banks that violate debanking rules.

Nick Anthony, a policy analyst at the Cato Institute's Center for Monetary and Financial Alternatives, said in an interview that Trump's Tuesday stance was "pretty aggressive" and "pretty confusing."

"[Trump] said the banks were discriminating against him, personally, against his supporters, and then almost in the same breath, he was saying that he thought the government was the problem here," Anthony said.

The first Trump administration tried a different version of this approach. The OCC proposed a fair access rule, introduced by then-acting Comptroller Brian Brooks, which would have prohibited national banks with more than $100 billion of assets from denying financial services to any firm without a "documented failure to meet quantitative, risk-based standards." Recently confirmed Comptroller Jonathan Gould served under Brooks as the OCC's leading bank regulatory lawyer, which is part of why the executive order is unsurprising coming from this administration, according to Matt Bisanz, a partner and bank regulatory lawyer at Mayer Brown.

"I've been predicting this will be an issue, because while many of the earlier statements that have been made this year were ambiguous…there were still things like the interview with Brian Moynihan where that was more directed at his bank, not at the way the regulators were treating his bank," Bisanz said.

Some banks are already feeling some pain from the prospect of the executive order. On Tuesday, Piper Sandler downgraded Amalgamated Bank, a company known as one of the main banks for the Democratic party and Green Energy, due to concerns that it could be targeted by the Trump administration.

"Although we believe that Amalgamated is a very well-managed and profitable bank, when we downgraded the stock to Neutral in February of this year, we cited our concerns that due to the company being the bank of the Democratic Party and being a major player in the Green Energy space, it could see parts of its business pressured and regulatory scrutiny ramp up under the new Trump administration," said Piper Sandler analyst Mark Fitzgibbon in a report.