US Banks Face Scrutiny Over Alleged Denial of Services to Certain Industries

US banks and their regulators came under scrutiny as lawmakers examined allegations that financial institutions are denying services to specific industries or political groups. The Senate Banking Committee convened a hearing on the controversial issue of debanking, featuring testimony from subject matter experts and business owners who claimed they were unfairly denied banking services.

Both Republican and Democratic senators acknowledged that some clients might be improperly denied banking access but disagreed on the underlying reasons. Republicans primarily criticized regulators, arguing that restrictive and unclear rules have discouraged banks from engaging with industries such as firearms manufacturing and cryptocurrency.

“These banks want to look for business but because of a regulatory environment that they have been in, they have been forced to decide whether they want to do business with certain types of industries,” said Senator Mike Rounds, a Republican from South Dakota.

Democrats, however, pointed to industry failures as justification for strong regulatory oversight. Senator Elizabeth Warren, the committee’s top Democrat, cited thousands of complaints in a regulatory database from individuals who were unable to open accounts or had their accounts unexpectedly closed.

“Big banks are relying on black-box algorithms and middlemen companies, and shutting down accounts without doing careful due diligence,” she said, identifying groups such as Muslims, cannabis-related businesses, and formerly incarcerated individuals as those affected by these banking practices.

Banking Industry Pushes Back Against Debanking Accusations

The banking sector has forcefully rejected claims that it denies services based on ideological motivations. Instead, industry representatives argue that outdated and burdensome regulations complicate the ability of banks to provide services or to adequately explain why certain clients are denied access.

Among those testifying were the head of Anchorage Digital, a cryptocurrency platform that alleges it has been debanked, and representatives from Old Glory Bank, a financial institution established in 2022 in response to concerns that major banks were unfairly denying services.

Several Republican-led states have introduced legislation to prevent perceived discrimination by banks, though the resulting patchwork of regulations has caused significant frustration within the industry. The issue gained further national attention in January when former President Donald Trump accused the CEOs of Bank of America and JPMorgan Chase of refusing services to some conservatives, fueling concerns over what he referred to as "woke capitalism."

Both banks refuted the accusations, asserting that they do not deny services based on political affiliations. Meanwhile, the banking industry is preparing to push for clearer regulatory guidelines, advocating for a standardized national policy on fair access to financial services, greater transparency in anti-money laundering regulations that sometimes necessitate account closures, and more streamlined supervision to help banks determine who they can serve.

Aaron Klein, a senior fellow at the Brookings Institution, highlighted regulatory burdens in his testimony. He pointed out that banks are required to report any cash transaction exceeding $10,000—a threshold set in 1972 that would be over $75,000 today if adjusted for inflation. Klein also noted that financial institutions have significantly increased the number of suspicious activity reports they submit to regulators. In 2003, banks filed 288,000 such reports, whereas by 2023, that figure had surged to 2.5 million, a trend driven by strict anti-money laundering compliance requirements.

By fLEXI tEAM