OCC: ‘debanking’ will factor into CRA, license applications

• Key insight: The OCC will factor “politicized or unlawful debanking” into bank licensing and Community Reinvestment Act reviews, potentially affecting bids for new branches, mergers, or leadership changes.
• What’s at stake: Banks found to have cut off services to conservatives could face penalties such as CRA downgrades, which in turn could impair mergers and acquisitions.
• Forward look: the guidance means allegations or evidence of debanking could derail typically routine business with the OCC.

The Office of the Comptroller of the Currency Monday informed banks that it will consider whether they engaged in “politicized or unlawful debanking” when reviewing their licensing applications and rating them under the Community Reinvestment Act.

The move, issued in an OCC bulletin Monday, follows an executive order aimed at preventing conservatives from being denied bank accounts.

“Politicized or unlawful debanking by banks implicates certain evaluative factors for such licensing filings, which range from the convenience and needs of the community to be served, fair access to financial services, fair treatment of customers, and the transaction’s impact on depositors, other creditors, and customers,” Comptroller of the Currency Jonathan Gould wrote in a release. “As part of its holistic review of licensing filings, the OCC considers, on a case-by-case basis, a bank’s record of and policies and procedures designed to avoid engaging in politicized or unlawful debanking consistent with the applicable evaluative factors.”

The push to stop “debanking” — what critics describe as the denial of financial services to a particular entity, often with nebulous explanations — gained momentum in Washington last year. Fueled by GOP animus over an Obama-era policy that discouraged banks from working with disfavored industries like arms dealers, the second Trump administration’s financial regulators have moved to rein in bank supervisors’ oversight of whom banks are doing business with and have removed reputational risk as a factor in bank examinations.

Under the new guidance, if a bank applies to open a new branch, merge, or change leadership, the OCC will consider whether the bank has engaged in this type of “debanking” as a factor for those applications to be approved. Similarly, the agency says it will look for evidence of debanking when evaluating whether a bank is meeting the credit needs of its community.

Congress passed the CRA in 1977 as a way to address de facto lending discrimination against communities of color. The act requires that banks be graded on how equitably they are lending to low- and moderate-income customers and neighborhoods in their service areas, typically determined by where they have branches and deposit-taking automated teller machines. Banks need to receive a satisfactory mark in order to complete M&A transactions.

The OCC says it may downgrade its rating if it finds evidence of debanking and will tailor how strictly it applies this scrutiny depending on the size and complexity of the bank.

“Whether a bank has engaged in politicized or unlawful debanking is a factor the OCC may consider, on a case by case basis, in determining the bank’s CRA rating,” Gould wrote. “Consistent with the OCC’s existing practice of tailoring requirements and supervisory expectations, the OCC will tailor its consideration of politicized or unlawful debanking in licensing applications filed by a bank and in a bank’s record of performance under the CRA based on the size, complexity, and overall risk profile.”