US Senate panel investigates whether banks, regulators deny services on political grounds

By Pete Schroeder

WASHINGTON (Reuters) -U.S. banks and their regulators were scrutinized on Wednesday by lawmakers as they examined claims that they deny services to particular industries or political groups.

The Senate Banking Committee held a hearing on what is commonly referred to as debanking, hearing testimony from subject matter experts and business owners who claim they were unfairly denied access to banking products.

Senior Republicans and Democrats agreed that banks may be improperly denying services to some clients, but disagreed on the root cause. Republicans trained much of their ire toward regulators, who argued opaque and restrictive rules and oversight discouraged some banking activity for industries such as firearms manufacturers and cryptocurrency firms.

"These banks want to look for business but because of a regulatory environment that they have been in, they have been forced to decide whether they want to do business with certain types of industries," said Senator Mike Rounds, a South Dakota Republican.

Democrats focused on industry missteps and argued they show the need for robust watchdogs. Senator Elizabeth Warren, the top committee Democrat, highlighted thousands of complaints collected in recent years in a regulatory database from people who could not open accounts or had accounts abruptly closed.

"Big banks are relying on black-box algorithms and middlemen companies, and shutting down accounts without doing careful due diligence," she said, listing groups such as Muslims, cannabis businesses and recently incarcerated people as victims of such practices.

BANKS RESIST DEBANKING CHARGES

The banking industry has fiercely resisted accusations that it denies services based on ideological reasons. It has instead argued that onerous, outdated and opaque rules make it difficult for banks to sometimes provide services, or explain why they cannot.

Witnesses who testified include the head of Anchorage Digital, a crypto platform that says it has been debanked, and Old Glory Bank, a bank established in 2022 that brands itself as a response to debanking complaints about larger lenders.

Republican-led states have pushed legislation to discourage perceived discrimination by banks, and the patchwork of varying laws meant to ensure banks lend fairly has led to frustration in the industry.

The dispute drew headlines in January, when President Donald Trump accused the CEOs of Bank of America and JPMorgan Chase of not providing banking services to some conservatives, echoing complaints of "woke capitalism."

The banks responded by saying they do not refuse services on political grounds. The industry is prepping a fresh push for clearer rules, arguing for a clear national standard on fair access to financial services, clarity around anti-money laundering laws that can force banks to close accounts, and streamlined bank supervision to help firms better understand who they can provide services.

Aaron Klein, a senior fellow at the Brookings Institution think tank, said in his testimony that banks are required to report to the government any cash transaction over $10,000, a threshold that has not been updated since it was set in 1972. Adjusted for inflation, it would now be over $75,000.

He also said banks have rapidly escalated the number of reports they file with regulators to flag suspicious activity, in compliance with anti-money laundering rules. Banks filed 288,000 suspicious activity reports in 2003 and 2.5 million in 2023, he said.

(Reporting by Pete Schroeder; Editing by Rod Nickel)