The free market necessitates voluntary exchange, free from government coercion. Mutual cooperation through this socio-economic structure once propelled America from a fledgling nation into a global leader in innovation and prosperity. However, in recent years, government-driven debanking has undermined this system—cutting off individuals and businesses from basic financial services based on subjective judgments about their perceived reputations.

States like Louisiana and Tennessee have argued that the “reputational risk” factor in federal banking guidelines has allowed regulators to discriminate against clients for their religious or political beliefs. The practice gained national attention under the Obama Administration’s “Operation Chokepoint,” a behind-the-scenes campaign that pressured banks to cut ties with firearms and ammunition dealers. Under the Biden Administration, a similar effort—dubbed Operation Chokepoint 2.0—targeted cryptocurrency companies through the Federal Deposit Insurance Corporation.

Suddenly losing access to banking has real consequences. Without a bank account, a business may be unable to process payroll, pay suppliers, or accept customer payments. For individuals, losing financial services can mean being locked out of loans, credit cards, and even the ability to pay bills electronically. In short, cutting off one’s access to the banking system can cause serious damage to their economic stability.

Louisiana led on this issue by passing the first resolution in support of federal action against government-pressured reputational debanking. In response to such initiatives, President Donald Trump has signed an executive order that prohibits federal banking regulators from pressuring financial institutions to cut services with users based on reputational risk.

The order:

  • Removes “reputational risk” language from federal banking guidance.
  • Requires investigations into past politicized, unlawful debanking.
  • Directs remedial actions, including fines, for institutions engaged in such practices.
  • Refers religious-based discrimination cases to the Attorney General.
  • Instructs the Small Business Administration, an independent government agency that serves small businesses and entrepreneurs, to compel banks under its jurisdiction to reinstate customers unlawfully debanked.
  • Calls on the Secretary of the Treasury and Assistant to the President for Economic Policy to develop a broader strategy to prevent future abuses.

Financial institutions are and ought to be free to adopt their own internal business policies in accordance with the law. However, when federal regulators pressure them to debank customers for so-called “high risk” behavior, such as political alignment, this becomes a distortion of the market. Past compliance with these recommendations often stemmed from fear of costly penalties for failing to detect criminal activity.

Although there is much good accomplished with this order, how it is implemented must be closely examined. It would be just as anti-market to have the government crack down on justified debanking when it is no longer prudent or profitable for a bank to maintain a customer relationship. Likewise, having the Small Business Administration order banks to reinstate customers could be government overreach if guilt of politized or unlawful debanking is assumed rather than proven.

Protecting economic freedom is protecting freedom itself, and that is a principle worth defending. If applied wisely, this executive order can help ensure the government acts as a referee, not a player, in the marketplace—keeping free enterprise strong and opportunity open for generations to come.