CRS Highlights De-Banking / De-Risking Policy Issues

The Congressional Research Service ("CRS") identified "issues relevant to accessing banking services among businesses," including the termination of accounts in cases where a consumer presents a risk to the bank, also referred to as de-risking or de-banking. 

In an In Focus report, the CRS highlighted that regulators argue de-risking is necessary to protect banks from legal and reputational harm, and critics claim banks are pressured to avoid certain industries for ideological reasons.

The CRS described several reasons for banks to terminate relationships with customers. The CRS raised the following issues for Congress to consider:

• Regulatory Compliance Risks. Banks are trying to limit exposure to enforcement actions for failing to comply with BSA/AML rules, which require customer due diligence, transaction reporting and suspicious activity monitoring.
• Industry-Specific Challenges. Banks and regulators have heightened concern over certain sectors—such as money transmitters, gun manufacturers and cannabis businesses—which are disproportionately affected due to perceived regulatory and reputational risks.
• State-Federal Law Conflicts. Cannabis banking presents risks to banks, as financial institutions operating legally under state law may still violate federal banking regulations. 
• Payments and Merchant Category Codes ("MCCs"). Some states mandate unique MCCs for firearm sales, while others prohibit them to protect consumer privacy.
• Financial Stability Risks. Excessive de-risking could drive financial activity outside the banking system, potentially reducing regulatory oversight and increasing illicit activity.
• "Operation Choke Point" and Ideological Concerns. Allegations persist that federal regulators pressured banks to cut ties with certain industries in 2013, dubbed Operation Choke Point, and similar claims regarding efforts to stifle cryptocurrency firms, referred to as "Operation Choke Point 2.0." (See related coverage.)