Trump signs executive order to address reputational risk in banking

US President Donald Trump signed an executive order aimed at ensuring all Americans have access to financial services, focusing on the risks posed by politicized banking practices. The order - Guaranteeing fair banking for all Americans - specifically targets financial institutions that restrict individuals' or businesses' access to banking services based on political, religious beliefs, or lawful business activities, describing such actions as both discriminatory and unlawful.

The executive order highlights concerns that bank regulators have, at times, used their oversight powers to encourage or direct institutions to engage in "politicized or unlawful debanking." This practice, according to the order, has led to individuals and businesses facing financial hardships, including frozen payrolls, mounting debt, and adverse credit terms, all due to their political or religious affiliations. The order emphasizes that such practices undermine public trust in the banking sector, harm livelihoods, and damage reputations.

"These practices are incompatible with the principles of a free society," the order states. "The provision of banking services should be based on objective, risk-based assessments, not political or ideological considerations."

The order also underscores the illegal nature of discriminatory banking actions under the Equal Credit Opportunity Act, noting that financial institutions may not refuse services based on protected political or religious beliefs. It further stresses that any political influence in banking decisions undermines both the integrity of financial institutions and the free expression of political beliefs.

Key provisions of the executive order include a directive for federal banking regulators to eliminate guidance materials that could be interpreted as allowing reputation risk to justify politicized debanking. Within 180 days, these regulators are instructed to revise or rescind any regulations that allow reputational risk or similar concepts to be used in ways that could lead to politically-motivated restrictions on financial services.

The order also mandates that financial institutions make banking decisions based solely on measurable, risk-based criteria, rather than on political or religious motivations. Regulators will be expected to issue formal guidance to ensure compliance, signaling a shift toward more transparent and non-partisan banking oversight.

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