Imagine spending years saving for a home. You watched the real estate market, built your savings and finally found your dream home. When it comes time to transfer money to the seller, however, you discover that you cannot access your bank account. You call your bank looking for answers, only to learn that your account has been closed. Your access to your hard-earned money has been disrupted and suddenly your dream of homeownership is on hold.
Now imagine learning that the decision was not based on your personal financial condition or unlawful activity, but instead was the result of pressure from government regulators who disapproved of your lawful business, political views or religious beliefs. That is government-driven debanking.
Under the Obama and Biden administrations, federal regulators used vague and subjective definitions of risk in their supervision to pressure financial institutions to distance themselves from lawful customers, organizations or industries viewed unfavorably by policymakers.
Texas lawmakers are rightly paying attention. The 90th Texas Legislature gavels into session in January, but interim hearings are already shaping the policies lawmakers will consider in the coming year. This week, the Texas Senate Committee on State Affairs is examining the denial or restriction of banking and insurance services based on political, religious or other non-financial considerations.
That examination is important, and Texas lawmakers are right to take the problem seriously. But let’s be clear: government-driven debanking is rooted in federal policy and demands a federal solution to protect every American’s access to banking services nationwide. Thankfully, leaders in Washington are already solving the problem.
President Trump paved the way through Executive Order 14331, "Guaranteeing Fair Banking for All Americans." The order directed federal banking regulators to remove “reputation risk” and equivalent concepts that could enable politicized or unlawful debanking from supervisory materials to ground bank supervision in individualized, objective and risk-based assessments.
The U.S. House has since passed the Main Street Capital Access Act, which incorporates the Financial Integrity and Regulation Management (FIRM) Act. This legislation would codify the removal of reputation risk from federal bank supervision and ensure all Americans have enduring fair access to banking, regardless of which party controls the White House. The bill now awaits action in the Senate.
Some Texas lawmakers have wisely already pointed Washington in this direction. Last session, Senator Tan Parker introduced SCR 44, urging Congress to address federal regulatory pressure on banks, modernize federal banking laws and increase transparency and accountability for bank regulators. That was the right approach then, and it remains the right approach today.
Texas lawmakers should continue supporting federal reforms rather than creating a new layer of state banking mandates. National financial markets and payment networks cannot efficiently function under 50 different standards. A patchwork of different requirements across the country would increase compliance costs, complicate operations, reduce consumer choice, and potentially make financial services more expensive - all without addressing the problem of government-driven debanking at its source.
A fair and competitive banking system depends on two principles working together. Law-abiding individuals and businesses should not be denied financial services because government officials disapprove of their politics, religion or lawful business activities. At the same time, private financial institutions must remain free from political pressure and able to make legitimate business decisions based on objective financial, legal and risk considerations.
Texas understands better than most that economic growth comes from clear rules, regulatory certainty and limited government. Those same principles should guide the state’s approach to debanking.
Texas lawmakers have an opportunity to send a powerful message to Washington: Texas supports fair access to financial services, but the solution to a federal problem demands a consistent federal standard.
The U.S. Senate should pass the FIRM Act and finish the work President Trump started.
Editor’s Note: The above guest column was penned by David Ibsen, executive director of Americans for Free Markets. The column appears in the Rio Grande Guardian with the permission of the author.
