Senate debanking hearing should focus on government’s role in politicizing finance

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Today the Senate Banking Committee is holding a hearing on debanking, which is the phenomenon of individuals and businesses in certain industries and with certain points of view losing access to financial services. As Nicholas Anthony writes in a new paper for the Cato Institute, ”after years bubbling up to the surface, the issue of debanking has captured the nation’s attention and sent many policymakers looking for solutions.”

It’s about time. My colleague Iain Murray, Vice President for Strategy at CEI, notes that CEI has warned for about government policies leading to debanking for more than 20 years. In today’s hearing and future Congressional probes, Congress needs to look at the myriad ways in which the government has driven debanking – both through reviewing documented evidence and conducting investigations of the roles of various government agencies.

As Murray notes, CEI published an essay by economist Richard Rahn in 2000 decrying Bank Secrecy Act requirements that banks “know their customers” and report on a variety of unusual or “suspicious activities” their customers may undertake, even if there is no evidence that these activities violate any laws. Rahn wrote in the essay that “bank employees who are expected to spy upon their customers will lose the bond of trust that is necessary for a civil society.” These warnings proved prescient, as Anthony notes that in many instances, “the government made it so costly to serve [certain] customers that the bank had to shut down their accounts.

Debanking accelerated with the Obama administration’s Operation Choke Point, which as Murray describes, was an “operation that started at the Department of Justice with the cooperation of financial regulators like the Federal Deposit Insurance Corporation that avowed to cut off the financial oxygen of businesses these regulators disliked, on the grounds that some of them might have been fraudulent.” As a result, hundreds of legal businesses in industry sectors from firearms to fireworks found themselves without access to financial services.

Debanking seemed to pause during the first Trump administration, as the Department of Justice formally ended Choke Point. But it returned with a vengeance during the Biden years, influenced by documented government jawboning efforts regarding cryptocurrency in what has become known as Choke Point 2.0 and likely by other government efforts that still need to be investigated. As my CEI colleague Stone Washington and I write in a recent op-ed the Washington Examiner, “Meta CEO Mark Zuckerberg and tech entrepreneur Marc Andreessen dropped bombshells on the popular Joe Rogan Experience about political persecution from financial regulators during the Biden years, spotlighting the Consumer Financial Protection Bureau as a locus of weaponized financial regulation.”

As my CEI colleague Patricia Patnode has written recently, Congressional investigations and tools like the Freedom of Information Act need to be better utilized to uncover potential documents similar to the “Twitter files” that show government involvement. This investigative objective – as well as halting government jawboning of banks to cut off certain groups’ financial services – should be the focus of this hearing and forthcoming government efforts on debanking.