“Debanking” is about to get a lot of airtime in US politics, but be warned: This debate is a chimera. Crypto enthusiasts, culture warriors and banks all have dogs in the hunt, with each leaning on the others’ interests and narratives to advance their own.
At heart, the issue is about the bureaucracy built to prevent terrorist financing and money laundering versus the costs of getting it wrong – for banks that get fined billions for failings and for victims when terrible things happen. National security is the bright red line here, not political conspiracies about liberals seeking to hobble conservatives with secret sanctions.
First, what is debanking? It’s people and businesses having accounts closed against their will, typically because it costs a bank more to manage the risk they pose than their custom is worth. The triggers include suspicious transactions or unexplained wealth; what makes it worse is lenders often can’t tell the client why they’ve been debanked, because law enforcement agencies and regulators don’t want actual criminals being tipped off that they’ve aroused suspicions. The problem has been around for years, but mostly affecting poorer immigrants, charities and small businesses that didn’t get heard so much.
Why do people care now? Marc Andreesen, the storied venture capitalist, has used recent podcasts to complain bitterly about political campaigns to quarantine cryptocurrencies from the financial system and kill the industry. As an investor in the field, he has a strong interest in crypto getting easier access to mainstream banks. It is hard for lots of people to buy and sell meme coins or more functional tokens if they struggle to swap these for dollar deposits.
To make its case, the crypto lobby has latched onto conservative anger at the idea woke bankers have been redlining certain industries, which were mainly linked to climate change or gun violence before crypto joined in. States such as Texas have previously barred big banks from municipal finance work on the basis that they denied loans to fossil fuel companies. Just last week, the state’s attorney general, Ken Paxton, wrote to major financial firms warning of legal action over their diversity, equity and inclusion policies, too.
With his flair for outrage, President Donald Trump enlarged the bandwagon by claiming there was a plot to debank conservatives solely on partisan grounds, publicly hazing Bank of America Corp. Chief Executive Officer Brian Moynihan on stage in Davos in the process. “Many conservatives complain that their bank is not allowing them to do business within the bank and that included Bank of America,” Trump told Moynihan. “I hope you’re going to open your bank to conservatives because what you’re doing is wrong.”
This is nonsense, just as it was when the UK’s populist provocateur Nigel Farage whipped up a similar storm in Britain a couple of years ago. For Moynihan, simple numbers tell the story: The bank has more than 70 million clients and opened 12 million new accounts just last year. You don’t become that big if you’re banking liberals alone.
But back to crypto. It’s very different to energy and firearms. For banks, it really is a high-risk enterprise — and I don’t mean because you could lose your shirt in a roller coaster Bitcoin market. Digital assets have been regularly caught up in fraud, terror and scams. The industry’s favorite bank, Silvergate Bank, went bust in early 2023 after being rocked by the fraudulent collapse of the crypto exchange FTX. The most popular stablecoin, Tether (which has a big Team Trump backer in prospective Commerce Secretary Howard Lutnick), was one of the main tokens used to send millions of dollars to Hamas ahead of its attack on Israel in October 2023, along with Bitcoin, Dogecoin and others, according to analytics firm Elliptic.
“The Trump administration has a lot of crypto friendly people,” says Henry Farrell,1 professor of international affairs at Johns Hopkins School of Advanced International Studies.2 “Equally, it has a national security team who are quite hawkish, and extremely keen that financial sanctions and various bits of anti-money laundering continue to serve the security interests of the United States. It is hard to see how both factions can end up happy.”
Crypto is far from the only high-risk money business: Check-cashing firms, wire-transfer franchises and foreign exchange booths are all exposed to money launderers, and many struggle to find banks that will serve them. Charities, too, often get dinged by for suspicious transactions and many resent being asked for details about their donors.
Banks have one suggestion for the crypto crowd: Just agree to be bound by the same requirements to know your customer and their sources of income, and to watch them for dodgy dealings. Without this, the risks for banks of dealing with crypto-related activity will remain, whether Trump liberalizes the industry radically or not. The Justice Department will still come with painful punishments if any bank ends up anywhere near aiding trafficking or terrorism. Victims of rug-pulls or other scams could also sue them.
But banks want the debanking debate in the hope of provoking reform. They bear the costs of helping the government detect and prevent financial crime, they miss out on some customers whose risks make them unprofitable and they must deal with the fallout when this leads to clients getting shown the door.
What banks want is a better regime that isn’t focused on mountains of suspicious activity reports or relatively small cash transaction limits, which they are examined on ruthlessly. The Bank Policy Institute recently made the point that the $10,000 cash transaction threshold for monitoring was originally fixed in 1945; the inflation-adjusted equivalent would be $175,000 today. Banks reckon they could fight crime better if they could redirect resources to investigating more significant activity, especially if the government told them explicitly what to look for.
But the heart of this problem is political: No government wants to be blamed by voters for missing a terror attack, or not fighting an addiction epidemic because it has taken its eye off the money flows that can expose the bad guys. Regulators are thus extremely circumspect when telling lenders what they should consider high risk. And banks have little choice but to avoid those people and industries, or to subject them to hefty due diligence if their business is worth the cost. The crypto lobby may have Trump’s ear, but those incentives aren’t going to change.
1 And co-author of Underground Empire: How America Weaponized the World Economy.
2 In August 2023, the Johns Hopkins School of Advanced International Studies welcomed students to the Hopkins Bloomberg Center in Washington D.C, funded by Bloomberg Philanthropies..
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