Let’s end ‘reputational risk’ debanking once and for all

Although this legislative session is near its end, Congress still has the opportunity to take an important step to ensure that financial regulation is not weaponized. It can pass into law the Financial Integrity and Regulation Management (FIRM) Act, which would forbid federal regulatory agencies from pressuring banks to cut off financial services on the basis of “reputational risk.”

As CEI scholars have long pointed out, regulators’ use of the nebulous concept of reputational risk in the examination and supervision of depository institutions in essence directed the debanking of industries that politicians and regulators simply disliked.

In the original Operation Choke Point of the Obama administration, government entities including the Justice Department, Federal Deposit Insurance Corporation (FDIC), and Consumer Financial Protection Bureau warned banks that servicing particular industries would increase the banks’ reputational risks and put them in hot water with regulators. As a result, several industries — from firearms to fireworks — found themselves cut off from financial services, or debanked.

While the Justice Department in the first Trump administration put an end to Choke Point, the Biden administration brought it back with what has been “Choke Point 2.0” that specifically targeted the cryptocurrency and fintech (financial technology) industries. As venture capitalist Marc Andreessen said to podcast host Joe Rogan in 2024: “It’s hit the tech world hard. We’ve had like 30 founders debanked in the last four years.”

Since the beginning of the second Trump administration in 2025, major financial regulatory agencies have explicitly dropped reputational risk as a criterion for banks to maintain. As CEI Senior Fellow Richard Morrison noted in National Review: “The major federal agencies that have oversight of banks in this country — the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency — have moved to drop the idea of corporate reputation, or ‘reputational risk,’ from their list of things they look at when deciding if banks are operating soundly and within the law… This is a development everyone in America should cheer.”

But like Choke Point’s previous abolition and resurrection between administrations, this development may be short-lived unless Congress acts. That’s why CEI Vice President for Strategy Iain Murray joined a coalition letter on behalf of CEI calling on the US Senate to follow the House’s lead and pass the FIRM Act.

As the letter states: “The FIRM Act restores accountability to federal bank regulators. It compels agencies to limit bank supervision criteria to objective metrics.”

And Democrats concerned about potential politicization of banking regulation from the Trump administration or subsequent Republican presidencies should be lining up to support the FIRM Act. As a Wall Street Journal editorial puts it:  

Liberals ought to cheer the rule since it will bar Trump bank regulators from targeting, say, abortion providers or Democratic politicians. Maybe they could even get behind GOP Senate legislation to codify the rule change. Call it the Stop the Debanking of Planned Parenthood and NRA Act.