Senate Banking Chairman Tim Scott Introduces “Debanking” Bill
Earlier this month, Senator Tim Scott (R-S.C.), Chairman of the Senate Banking Committee, introduced the Financial Integrity and Regulation Management (FIRM) Act, legislation to curb “debanking” and prohibit regulators from using reputation risk as a component for supervision. Debanking is when accounts that banks consider risky are closed, often with little notice, and has become a primary issue for Republicans, specifically as the cryptocurrency industry claims it has been unfairly targeted.
“It’s clear that federal regulators have abused reputational risk by carrying out a political agenda against federally legal businesses,” Scott said in a statement, according to The Hill. “This legislation, which eliminates all references to reputational risk in regulatory supervision, is the first step in ending debanking once and for all.”
The FIRM Act will eliminate all references to reputational risk as a way to measure financial institutions’ safety, as well as prohibit federal banking agencies’ ability to come up with new guidance that uses reputational risk. To increase supervision, the agencies must report to Congress on their elimination of reputational risk.
Republicans have voiced concerns about debanking for several years. Scott called out the financial regulators of the Biden administration at his first legislative hearing of the year for pressuring financial institutions to cut services to businesses and individuals. Republicans have also been opposed “Operation Choke Point,” an Obama-Administration initiative which discouraged banks from working with businesses in certain industries.
All Republicans on the Senate Banking Committee joined Scott on the legislation. “Americans deserve a transparent regulatory framework that fosters innovation in digital assets instead of smothering it with government overreach,” said Senator Cynthia Lummis (R-Wyo.).
Cryptocurrency has been widely supported by Republicans, including by President Trump who has embraced the industry. Additionally, Trump has taken aim at “debanking” as an issue by accusing banks of refusing to work with conservatives.
