In a partial victory for all those campaigning against the abuse of power known as Operation Choke Point (see our comprehensive study here), the Federal Deposit Insurance Corporation (FDIC) has issued guidance to its supervisory staff that restricts some of the methods used to advance Choke Point.
Operation Choke Point is a Department of Justice initiative aimed at “choking off” the financial oxygen of businesses the administration disapproves of, with a special focus on payday lending. It threatens banks that do business with these industries with burdensome investigations and subpoenas, which has led to banks closing accounts with legal businesses that have had a perfect banking record.
One of the ways Choke Point has proceeded has been via supervisors issuing veiled threats or direct but unwritten comments that suggest a banking institution should stop doing business with a client. As a result, there has been no paper trail within the administration directly linking the closure of bank accounts with Operation Choke Point.
This new memorandum purports to put a stop to that. It tells its staff that recommendations for closure of bank accounts should not be made through informal comments, and that banks should not be informally criticized for their relationships. All such recommendations now need to be put in writing.
Furthermore, “reputational risk” alone is no longer to be considered grounds for recommending the termination of a banking relationship. Previous FDIC guidance on “reputational risk” was the source of the much-talked about list of industries targeted by Operation Choke Point. The withdrawal of the list by FDIC several months ago may have led to an even broader interpretation of “reputational risk,” with suggestions that even coal mines have been the target in some areas.
That these two guidelines had to be put in writing is an implicit admission by FDIC that its staff has been guilty of these practices. The instruction to cease such arbitrary behavior is a victory for campaigners against executive abuse, and in particular for Rep. Blaine Luetkemeyer (R-Mo.), a former banking examiner who took his complaints directly to the head of the FDIC.
FDIC, however, is only half the battle. The investigating attorneys at the Department of Justice who began the Operation still retain the power to issue subpoenas that can cause havoc to any bank that receives one. That threat remains, and banks will still be wary of doing business with companies that might possibly attract one. Until the DOJ is brought in line, Operation Choke Point will likely continue.