America’s biggest banks are feeling regulatory relief after President Donald Trump’s executive order to rein in de-banking has had months of impact on the U.S.’s financial systems.
The reputational risk standard that pushed regulators to essentially force banks to strip individuals of their accounts for political reasons has been dissolved and is allowing financial institutions more freedom to implement balanced and apolitical internal policies, sources on Wall Street tell Fox Business.
Banks expect fewer account closures, Suspicious Activity Reports (SARs) require less paperwork and encourage financial institutions to focus on high-risk activities.
“We appreciate the constructive steps taken by the Administration, and we’ve implemented additional measures to enhance transparency for our clients and to address any inaccurate perceptions around our practices,” a spokesperson for Bank of America told Fox Business.
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Fox Business learned that Bank of America has implemented new policies to communicate to clients the reason for an account closure, when possible. The top bank also says they never revoked accounts for political reasons, but pressure from regulators under previous administrations did exist.
While the BoA previously removed categorical prohibitions on specific sectors, regulatory relief has also allowed the country’s second-largest bank to make clear that political affiliation or viewpoint was never weighed in discriminating against those who qualify for an account.
Senate Banking Chairman Tim Scott described the role regulators play in the industry as “a financial swamp in D.C. and beyond that decides who gets an account, who gets a loan, who has access.”
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“These are folks who have not been elected by the citizens of our country,” Scott explained during an interview with Fox Business last year.
The Financial Crimes Enforcement Network (FinCEN), which operates under the Treasury Department, issued an FAQ in October, which outlined key updates in SARs reporting requirements.
Prior to the FAQ, SARs, or even reports on why SARs weren’t filed at all, were required for banks. The consequences for banks not adhering to strict and often biased regulatory requirements are great, but sources on Wall Street say that the Trump administration’s posture toward regulators has alleviated some concerns, with regulatory pressure to consider political de-banking included.
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The expansive power regulators acquired was shaped during Operation Choke Point under President Barack Obama’s Department of Justice, which permitted regulators to target bank accounts based on loosely defined “reputational risk.” President Trump’s executive order served to reverse course on those standards and allow banks to function without the intense scrutiny of regulators.
President Trump’s family were revealed to be a victim of reputational risk after First Lady Melania explained a bank closing her account and preventing their son, Barron, from opening an account following the events of January 6, 2021, as detailed in her memoir.
While the Trump administration’s executive order played a crucial role in reducing the power of regulators and giving the federal government what Wall Street says is too much authority over free markets and the financial system, the executive order could be undone by a future administration.
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Senate Banking Chairman Tim Scott has been vocal about his legislation, the Financial Integrity and Regulation Management (FIRM) Act, to ensure that regulatory power is checked and barring political de-banking practices are codified and cannot be undone without Congress.
“I’ve pushed back on Washington regulators who tried to pressure banks into cutting off lawful businesses and everyday Americans,” Senate Banking Chairman Tim Scott told Fox News Digital. “President Trump understands that no one should be locked out of the financial system, which is why he signed an executive order to stop this practice.”
“We’re already seeing real results – regulators are pulling back rules that punished banks for serving legal customers, thanks to the President’s action and my FIRM Act,” Scott added.
The FIRM Act passed through the Senate Banking Committee and awaits a vote on the Senate floor.
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