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

Large American banks are facing dual pressure from conservative state governments and the Trump administration. States accuse banks of discriminating against the firearms and fossil fuel industries and have placed them on a blacklist. Meanwhile, the Trump administration is brewing an executive order for 'de-banking' that could jeopardize the business dealings between banks and the federal government.

Written by: Zhang Yaqi

Source: Wall Street Journal

Large U.S. banks are facing dual pressure from Republican state governments and the Trump administration, with these states accusing them of discriminating against industries such as gun manufacturing and fossil fuels.

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

According to media reports on the 24th, 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 are refusing to do business with specific industries. These states believe that the 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 that financial institutions face amid changes in the political environment. If the Trump administration issues relevant executive orders, it could jeopardize the business relationships between banks and the federal government, including core operations such as the sale of government bonds.

The Counterattack of Conservative States and the Response of Banks

A growing number of conservative states are accusing banks of politically motivated boycotts of certain industries, rather than based on factors such as traditional credit solvency. As a result, states such as Texas and Oklahoma have blacklisted some banks, barring them from participating in state government contracts. Banks, for their part, argue that they weigh risks when deciding who to do business with and limit their 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 a 'Make America Great Again' (MAGA) bank; I want them to manage my portfolio and stay away from these political ideologies. I think they realize this is a fair position."

Russ revealed that JPMorgan, Bank of America, and Wells Fargo have met with him to try to remove the blacklist of oil and gas companies discriminated against in Oklahoma.

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

This year, Citigroup and JPMorgan Chase updated their policies to clarify that they would not discriminate based on political positions, stating that this has always been part of their existing practices. They are also among the large banks that recently exited the "Net-Zero Banking Alliance," a climate industry organization that has faced scrutiny from the Texas Attorney General.

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

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

The Trump Administration's Intervention and the Wave of "De-Banking"

"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 stance. The Trump Organization sued Capital One bank in March, citing that the bank closed hundreds of its corporate accounts in 2021. Capital One denied in court documents that the account closures were due to political differences with Trump.

According to informed sources, 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 under Vince Haley, with participation from other White House departments.

This executive order may jeopardize the business relationship between banks and the federal government, such as government bond sales. In Florida, the relevant law even mentions that if banks are found to make decisions based on a customer's political or religious views, they could face "dissolution or reorganization."

An executive order from Trump may also jeopardize the relationship between banks and the federal government, such as the sale of government bonds. Sources reveal that the drafting of the executive order may be handled by Trump's domestic policy council, with involvement from other White House departments.

Regulatory Environment Shift

The chairman of the Senate Banking Committee, Republican Senator Tim Scott of South Carolina, proposed legislation in March this year to prohibit regulators from considering reputational risk factors. Since then, regulators under the Trump administration have begun to eliminate this concept from bank examinations, with the Federal Reserve Board becoming the latest agency to take this step on Monday.

According to people familiar with the matter, many large banks have seen an increase in meetings with Republican state governments this year. The big banks also told Republican leaders on the Senate Banking Committee that regulators require them to consider reputational risks posed by customers, including negative corporate coverage.

Russ said:

"These large companies exhibit a significant amount of political posturing and philosophical intervention when making financial decisions. We hope they can act impartially. No radicalism, no politics, no philosophical assertions."