ICYMI: New Cato Report Documents Government’s Role in Debanking, Calls for Congress to Act

“Congress should take a targeted approach to address the problem of debanking”

In case you missed it, a new report released today by the Cato Institute, details how government-driven debanking has led to the sudden and often unexplained closure of financial accounts, and what Congress can do to remove the tools that the government has used to pressure banks and other financial institutions.

The report authored by Nick Anthony, a Cato financial policy analyst, found that most debanking is driven by direct and indirect pressure from the federal government, underscoring the need to permanently rein in this form of regulatory government overreach. The report points to several key findings:

• Debanking is driven mostly by government pressure, not religious discrimination or political bias at banks. Despite claims of bank bias, the report maintains that most account closures stem from federal laws and regulatory pressure that coerces banks to cut ties with customers to avoid penalties.
• Partisan federal regulators pressured banks to do their bidding. A deeply flawed regulatory regime – too subject to changing political winds – incentivized banks to close accounts, even when customers have done nothing illegal.
• Confidentiality and secrecy requirements leave Americans in the dark and distort public perception. Banks can be legally prohibited from explaining to customers why an account has been closed, fueling fear, confusion and misplaced accusations of political or religious bias.
• The fix is less government coercion; not more influence over banks. The report urges Congress to end reputational risk regulation, reform the BSA and confidentiality requirements and restore free market decision making so financial access for Americans isn’t determined by unaccountable regulators. At the same time, Congress and state policymakers should resist calls to turn banks into utility services by mandating access to accounts. Private businesses should be free to make their own decisions about their operations and activities.

By focusing on limiting the government’s role in private banking decisions, enhancing transparency and removing regulatory incentives that push banks to close accounts unnecessarily, Congress would better protect financial access, economic freedom and the proper functioning of free markets.

On the report, David Ibsen, executive director of Americans for Free Markets, said, “When the government secretly — but heavy-handedly — pressures banks behind closed doors, economic freedom and access for everyone is stymied. This welcome report lays out a clear roadmap for Congress to restore fairness, transparency and market-driven access to financial services for all law-abiding Americans.”

See how AFFM has advocated for reforms in privacy, BSA rules and reputational risk with a recent op-ed and oversight panel blog.

Read the Cato Institute’s full report HERE.