A few days ago, the Office of the Comptroller of the Currency issued a report confirming that the nine largest banks in the country engaged in debanking thousands of people based on their political or religious beliefs. This is at best outrageous, and at worst, illegal — and clearly it needs to be addressed quickly and firmly.
For about a five-year period, these large banks engaged in debanking (closing customers’ account and preventing them from access to bank services) for “other than business reasons.” These individuals and entities just so happened to be Christian, conservative, or both.
The debanking created incredible disruption and difficulty for the victims. Imagine waking up one day and finding out that all of your checking and savings accounts were frozen for “hate, violence, racial intolerance … or items or activities that encourage, promote, facilitate or instruct others regarding the same” and having absolutely no idea why it happened. It would be devastating, which was the intention.
This is especially triggering for those of us old enough to remember the shenanigans of the Lois Lerner Internal Revenue Service during the Obama administration. A single example of such a bad actor can be enough to destroy faith in government institutions for a generation.
The debanking was a focused effort, spearheaded by pressure from the now criminally indicted Southern Poverty Law Center and other radical leftist organizations, and encouraged by members of the Biden administration.
Avoiding Unintended Consequences
Admittedly, as infuriating as this is, and as much as banks deserve blanket sanctions, there is a very thin line between punishing authentically bad actors who enthusiastically assisted the Biden administration with its vendetta against conservative citizens and creating a situation where the unintended consequence of the action is a different violation of civil rights.
For example, we should be reluctant to force banks to do business with everyone for the same reason we are reluctant to force a baker to make a cake for an event he finds personally objectionable. Now, if the baker refused to bake the cake because of pressure from a government entity who wanted to punish a political opponent, this is a different matter. At the same time, it’s imperative to ensure that the individual rights of citizens aren’t violated. It’s also sensible to keep in mind that any new enforcement tool will likely be perverted the moment Democrats regain power.
How to Address the Problem
So what can be done? Obviously, if there is enough evidence at the grand jury level to go forward with indictments, bad actors (both in government as well as the private sector) should be prosecuted to the limit of the law. Additionally, victims of discrimination should be permitted to waive arbitration and litigate against malfeasant institutions.
Since sunlight is the best disinfectant, at the request of the debanked customer, regulators could require banks to publicly disclose the reason for debanking so that the public can judge whether to continue to employ an institution based on how it treats its customers.
Another option would be to require banks to fund annual examinations of their debanked customers to ensure no political or religious bias was exercised and then publish the results of the examination.
It would be prudent to make the statute of limitations on the findings of these examinations at least 12 years to allow for different administrations to consider the infractions objectively.
Fines
Also, regulators could make fines for this activity material enough that it deters the activity, and make the punishment fit the market cap of the institution, not the infraction. The latter is key, because to deter corporate leadership from accepting bad behavior, they need to be fearful, and the best way to frighten bankers is to threaten them with financial impairment to their corporations’ balance sheet that would lead to a loss of their personal compensation.
A punitive fine has to be so large that the company has to borrow money to pay for it and as a result the market should take its shares to the woodshed. Otherwise it’s a cost of doing business.
If a bank acts out with enough frequency, it would be possible to suspend it from participating as a primary dealer in government securities or even deny it access to the various federal financing windows it uses to supplement its own operations.
Prosecuting Officials
Additionally, we should prosecute people within the administration for violating the rights of the debanked customers. There is still time to look into doing precisely that for members of the Biden administration on a statutory basis. It is clear at this point that the Democrat Party is enthusiastically using every tool it has — up to and including banks and the Internal Revenue Service — to crush its political opposition. The only remedy for this is to legally make officials sincerely regret breaking laws and regulations. These entities also need to be held to higher ethical standards.
There should be no tolerance whatsoever for this type of behavior either in the public or private sector. The freedom to enjoy political and religious views without the fear of prosecution for them is elemental to the American experience. With a few nuanced steps we can greatly reduce the risk that bad actors like those in the Biden administration are able to do are able to weaponize the financial system ever again.
Mark Mazman is a 1991 graduate of North Central College. He is an over 30-year veteran in the financial services industry, experienced in dealing with public and private business, as well as private clients.