By Nupur Anand, Pete Schroeder and Saeed Azhar
NEW YORK (Reuters) -U.S. President Donald Trump’s executive order requiring banks not to discriminate against clients on political or religious grounds could create uncertainty and administrative headaches for the industry, sources said.
Trump signed an executive order on Thursday directing the Treasury Department and bank regulators to ensure lenders do not have policies in place that deny services to customers based on political or religious beliefs, a practice known as “debanking.” Any wrongdoing uncovered could result in fines, disciplinary measures, and even referrals to the Justice Department.
The order came days after Trump accused JPMorgan Chase and Bank of America last week of debanking him, and alleged that lenders discriminate against conservatives. Large banks have denied rejecting clients on political grounds, and instead blamed unclear rules for some of the account closures.
Banks have earlier said that certain decisions to close accounts were based on rules around reputational risk, a criterion that has been banned by Trump’s order.
The order also gave regulators about 180 days to conduct their review. While some lenders welcomed the order for its potential to streamline processes, they also expressed concerns about how onerous it could be to comply with the order. The scope and zeal with which regulators carry out Trump’s directions are still unclear and causing some trepidation, experts and industry officials said.
“There are words in the executive order which can be open to interpretation,” said Matt Bisanz, a partner at Mayer Brown. “We will have to see what meaning the regulators attach to it, and what is the scope of the activities that they focus on.”
“It’s not even clear if there will be regulations or just guidance, which will be enforced through the bank exam process or will be handled in a quiet, non-public manner,” Bisanz added.
Trump’s criticism echoed longstanding debanking complaints from Republicans, who have accused Wall Street banks of “woke capitalism,” in denying services to gunmakers, fossil-fuel companies and others perceived to be aligned with the political right.
“Fair access to financial services is a fundamental principle of the U.S. banking system,” said Jonathan Gould, the Comptroller of the Currency, in a statement in response to the new order. “It is unacceptable for banks to discriminate against any customer on the basis of political or religious beliefs or lawful business activities.”
The OCC, which oversees national banks, is currently reviewing banks for improper policies and will take remedial actions “as appropriate.”
Spokespeople for the Federal Reserve and the Federal Deposit Insurance Corporation declined to comment on how they plan to implement the order.
Industry executives say there are many questions about the executive order that may only be clarified if regulators publish rules on debanking, said three sources who declined to be identified because the discussions are private. It is too early to tell how onerous it will be to comply with the order given the lack of details so far, another industry source said.
Banks could also face myriad challenges if they are forced to review and potentially renew client relationships over debanking, said Stephen Gannon, partner at Davis Wright Tremaine. Reinstating or modifying arrangements, as the order suggests, would require banks to analyze large volumes of data on client activities and products, he said.
Regulators are unlikely to hand out penalties for any historic account closures, but they could be asked to disclose reasons for past debanking, two sources said.
Now that the order has been announced, banks could face regulatory penalties if debanking guidelines are not properly implemented, said Ed Mills, an analyst at Raymond James, a financial services firm.
(Reporting by Nupur Anand and Saeez Azhar in New York and Pete Schroeder in Washington; Editing by Lananh Nguyen and Andrea Ricci)
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