Why would a bank suddenly shut down a customer’s adequately funded account? Some leading Republicans, echoing tech titans like Marc Andreessen, have warned of a conspiracy among regulators to “debank” conservatives and crypto enthusiasts.
The real story is almost certainly more mundane, but it shows that the government’s approach to suspicious financial activity — especially in the age of cryptocurrency — isn’t as well-focused or transparent as it should be.
The debanking dispute has its roots in an ill-advised Obama administration effort called Operation Choke Point. Starting in 2013, regulators identified certain industries, including payday lenders and gun dealers, that allegedly presented a high risk of fraud or money laundering. Without much in the way of due process, banks were encouraged to scrutinize such businesses and, in some cases, to shut their accounts.
After Republicans argued — with some evidence — that the administration was targeting legal businesses for political reasons, the effort ended in 2017. In some states, outraged legislators responded by effectively requiring banks to lend to gunmakers.
Now some in the tech industry have alleged that Operation Choke Point 2.0 is underway to deprive conservatives and cryptocurrency companies of banking services. Congress is holding hearings and investigations will no doubt follow. If any illegal or inappropriate practices are revealed, they should of course be stopped. More likely, however, is that the campaign’s real aim is to pressure regulators into taking a more permissive stance toward crypto assets and companies.
Protecting the banking system from criminals and terrorists is of course essential. The US requires banks to monitor where customers get their money and where they send it, and to file reports when they see suspicious activity or currency transfers of more than $10,000. Clients who engage in so-called money services business — such as cashing checks or transmitting funds — can present additional risk and require enhanced due diligence. Banks that don’t do enough to screen out criminals can be hit with huge fines, lawsuits and business restrictions.
Many banks have shied from crypto-related customers. Unsurprisingly, an industry designed to move money anonymously and outside of regulated channels has an appalling record of abetting criminal activity. Even when used lawfully, digital currencies are exceedingly volatile. The cryptocurrency meltdown in late 2022 showed how quickly losses on tokens can spread to banks. (Exhibit A: Silvergate Capital Corp., which relied on crypto firms for 98% of its deposits and was forced to liquidate in 2023.)
Regulators therefore had good reason to remind banks of the risks posed by crypto assets. At times, the caution may have gone too far: An executive from Anchorage Digital, a crypto platform, told the Senate Banking Committee on Wednesday that his company was abruptly cut off by a long-term partner bank in June 2023, under what he alleged was inappropriate pressure by supervisors. Such cases deserve investigation. But absent evidence of real misconduct — as opposed to appropriate but unwanted scrutiny — crypto should tone down the rhetoric about political interference.
That said, it remains true that many innocent customers — conservatives and liberals, immigrants and charities — lose access to banking services because of anti-money-laundering rules. Common-sense reforms could help ease the burden on banks and limit the harm to customers. As one example, an inflation adjustment to the five-decade-old currency transaction reporting threshold, raising it to about $72,000, would cut the number of filings by at least 90%. Little would be lost, as law enforcement has reviewed fewer than 3% of filings since 2014.
The government should also speed up implementation of a 2020 law that would limit suspicious-activity reports on low-risk customers and activities and help banks test new technology to detect money laundering. Banks should be given more leeway in judging whether a customer truly represents a risk. More transparency about such decisions, by banks and regulators alike, might ease the conspiratorial fervor among critics.
Americans — of both parties — deserve fair access to banking services as well as a stable financial system closed off to criminals and terrorists. Those goals shouldn’t be in conflict.
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