debanking

As we noted last week, one of the next executive orders flying off the resolute desk in the Oval Office is likely to demand an end to debanking.  In sharp contrast to the executive orders eviscerating DEI, the independent banking agencies need not follow a presidential debanking order. This affects their independent safety-and-soundness powers unlike personnel policy subject to the Executive Branch.  But, independent or not, the banking agencies are nothing if not politically aware and at least two of the three agencies are also now politically-aligned with the president.  It’s thus not a question of whether there will be anti-debanking standards, but rather what they do to banks trying to make a buck.

Wanting debanking doesn’t mean that getting debanking will be easy or inconsequential to the thousands of banks that never consciously debanked a dollar’s worth of deposits.  One of the thorniest debanking problems derives from the fact that banks and other financial companies quite properly make business decisions based on qualitative factors, not just the quantitative ones on which anti-debanking efforts relied.  Some of these qualitative factors are quite simply what makes some bankers better bankers than other bankers when it comes to decisions about whom to serve how based on expectations of future profitability. As history all too often proves, strategic insights are often at least as subjective as quantifiable.

Banks have also long chosen not to serve complex businesses that require costly underwriting and risk-management capacity unless they have the economies of scope and scale …