"De-banking"! The U.S. banking industry has become Trump's next target

Large American banks are facing dual pressure from Republican state governments and the Trump administration, which accuse them of discriminating against industries such as gun manufacturing and fossil fuels.

A greater threat may come from Trump himself, who is considering shifting federal government power towards the banking industry and implementing an executive order on "debanking." An increasing number of conservative state governments have blacklisted certain banks, prohibiting them from participating in state government contracts.

According to media reports on the 24th citing informed sources, representatives from large banks such as JPMorgan Chase, Citigroup, and Wells Fargo met with officials from states like Texas and Oklahoma to refute allegations that they refuse to do business with specific industries. These states believe that banks are making business decisions for political reasons rather than traditional risk assessments.

This move by the banking industry highlights the regulatory and business risks financial institutions face amid changing political environments. If the Trump administration issues relevant executive orders, it could jeopardize the banks' business relationships with the federal government, including core operations such as the sale of government bonds.

Counterattacks from Conservative States and Responses from Banks

An increasing number of conservative states accuse banks of resisting certain industries for political motives rather than based on traditional creditworthiness and other factors. States like Texas and Oklahoma have blacklisted some banks, prohibiting them from participating in state government contracts. Banks argue that they weigh risks when deciding whom to do business with and limit relationships with certain companies for financial, legal, and reputational reasons.

Oklahoma State Treasurer Todd Russ stated in an interview:

"I'm not asking them to be 'Make America Great Again' (MAGA) banks; I want them to manage my investment portfolio and stay away from these political ideologies. I think they realize this is a fair position."

Russ revealed that JPMorgan Chase, Bank of America, and Wells Fargo have met with him in an attempt to be removed from Oklahoma's blacklist against companies that discriminate against oil and gas.

Earlier this month, Citigroup discussed with Texas Governor Greg Abbott the bank's previous policy of ceasing business with companies that sell firearms to individuals under 21.

This year, Citigroup and JPMorgan Chase updated their policies, clarifying that they would not discriminate based on political positions and stating that this was already part of their existing practices. They are also among the large banks that recently withdrew from the Net-Zero Banking Alliance, a climate industry organization that has been questioned by the Texas Attorney General.

Goldman Sachs, Morgan Stanley, JPMorgan Chase, and Wells Fargo have lifted some restrictions on collaborating with the coal industry or are discussing whether to do so. Bank of America lifted its ban on coal companies by the end of 2023. A spokesperson for JPMorgan Chase stated:

"We believe that understanding policymakers' perspectives and sharing our own views can make us a better bank."

Intervention from the Trump Administration and the Wave of "Debanking"

"Bank discrimination" has become a new focus under the Trump administration. Christian, conservative, and cryptocurrency group alliances accuse large banks of refusing to provide services based on political positions. The Trump Organization sued Capital One in March for closing hundreds of its corporate accounts in 2021. Capital One denied in court documents that the account closures were due to political disagreements with Trump.

According to insiders, the Trump administration is considering issuing an executive order regarding "de-banking." The drafting of this executive order may be led by the Trump Domestic Policy Council, headed by Vince Haley, with other White House departments also involved.

This executive order could jeopardize the business relationship between banks and the federal government, such as the sale of government bonds. In Florida, relevant laws even mention that if banks are found to make decisions based on customers' political or religious views, they may face "dissolution or reorganization."

An executive order from Trump could also threaten the relationship between banks and the federal government, such as the sale of government bonds. Insiders revealed that the drafting of the executive order may be handled by Trump's Domestic Policy Council, with participation from other White House departments.

Regulatory Environment Shift

Senate Banking Committee Chairman and South Carolina Republican Senator Tim Scott proposed legislation in March to prohibit regulatory agencies from considering reputational risk factors. Since then, regulatory agencies under the Trump administration have begun to eliminate this concept from bank examinations, with the Federal Reserve Board being the latest agency to take this action on Monday.

According to insiders, many large banks have increased meetings with Republican state governments this year. Large banks have also informed Republican leaders of the Senate Banking Committee that regulators are requiring them to consider reputational risks related to customer composition, including negative media coverage of companies.

Russ stated:

"These large companies have a lot of political posturing and philosophical involvement when making financial decisions. We hope they can act impartially. No activism, no politics, no philosophical advocacy."