A new final rule published by the Trump Administration’s Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) has put an end to “reputational risks” as an excuse for banking discrimination.
At issue is the practice of large banks “debanking” or refusing to do business with corporations, like those in the firearm and ammo industry, that are legal but some consider politically incorrect. Last December, the OCC released findings that over the past several years, large banks systematically “made inappropriate distinctions” of lawful businesses, including those against firearm-related businesses, to restrict access to banking services.
The National Shooting Sports Foundation, which has been instrumental in bringing the travesty to light and working toward answers, expressed appreciation to the Trump Administration for its efforts to end the discrimination.
“This Final Rule effectively puts a nail in the coffin of the ‘woke’ discrimination waged against firearm and ammunition businesses by banks attempting to choke off those businesses by denying them access to essential banking services,” Lawrence G. Keane, NSSF senior vice president and general counsel, said in a news article on the final rule. “The Trump administration is delivering for the industry that makes exercising Second Amendment freedoms possible. This unscrupulous practice of weaponizing finance was blatantly illegal and had already been rejected by Congress. President Trump, through the OCC and FDIC, is ensuring unlawful banking discrimination cannot be waged against legitimate and lawful industries.”
As the NSSF pointed out, the final rule defines “reputational risk” and prohibits the OCC and FDIC from criticizing or taking adverse action against an institution on the basis of reputation risk. The rule also prohibits the agencies from requiring, instructing, or encouraging an institution to close customer accounts or take other actions on the basis of a person or entity’s political, social, cultural, or religious views or beliefs, constitutionally protected speech, or solely on the basis of politically disfavored but lawful business activities perceived to present reputation risk.
The final rule states: “The agencies believe that banking regulators’ use of the concept of reputation risk as a basis for supervisory criticisms increases subjectivity in banking supervision without adding material value from a safety and soundness perspective. The agencies believe that most activities that could negatively impact an institution’s reputation do so through traditional risk channels (e.g., credit risk, market risk, and operational risk, among others) on which supervisors already focus and already have sufficient authority to address.”
The final rule concluded: “The OCC concludes the rule may benefit institutions and their customers by eliminating perceived constraints on institutions’ decisions that could have arisen from institutions’ perception of regulators’ expectations regarding reputation risks in the absence of the rule. Benefits from less subjective supervision. One additional benefit of removing reputation risk is greater consistency and objectivity in supervisory decisions. This, in turn, would increase the predictability for regulated institutions to understand and manage regulators’ supervisory expectations.”