By Jason Stverak
The practice of “debanking”—closing or restricting business and personal accounts without clear justification—has become an alarming trend in the banking industry. This issue has affected countless individuals and businesses, often leaving them without access to essential financial services. While the reasons for debanking vary, ranging from regulatory scrutiny to reputational risk concerns, the lack of transparency has sparked widespread criticism.
The History Of Debanking
First gaining widespread attention in the early 2010s, banks began terminating accounts associated with high-risk industries. Much of this stemmed from Operation Choke Point, a U.S. Department of Justice initiative launched in 2013. Under the guise of combatting fraud and financial crimes, Operation Choke Point targeted financial institutions that worked with industries deemed “high risk,” such as payday lenders, firearms dealers, and other legal but controversial businesses. Banks, fearing regulatory penalties, responded by indiscriminately closing accounts in these industries, effectively cutting off their access to the financial system.
While Operation Choke Point was officially discontinued in 2017, its legacy endures. Many banks continue to engage in risk-averse behaviors, closing accounts for individuals and businesses based on perceived reputational concerns rather than regulatory necessity. In 2023, a Congressional hearing revisited the effects of Operation Choke Point, with lawmakers expressing bipartisan concern over the lingering practice of debanking.
Industries Most Impacted By Debanking
Cryptocurrency Businesses
Cryptocurrency firms have been a primary target of debanking practices. Banks often cite concerns over anti-money laundering (AML) and know-your-customer (KYC) compliance as reasons for terminating accounts associated with crypto. In 2023, Forbes reported that several U.S.-based crypto companies had their accounts closed without clear explanations, leaving these businesses unable to process transactions or manage payroll. For example, Kraken, one of the largest cryptocurrency exchanges, faced debanking challenges as regulators increased scrutiny of the crypto sector.
Firearms Manufacturers and Dealers
The firearms industry has also faced significant challenges due to debanking. Financial institutions, citing reputational risk, have increasingly denied banking services to firearms manufacturers and dealers, even though these businesses operate legally and adhere to strict regulations. In 2022, the National Shooting Sports Foundation (NSSF) reported that numerous firearm dealers had their accounts closed, often with little to no explanation. This financial exclusion has made it difficult for these businesses to obtain loans, process payments, or maintain day-to-day operations.
Other Targeted Industries
Legal but controversial industries, such as cannabis, and payday lending, have also been affected by debanking. According to the Electronic Frontier Foundation, nonprofit organizations and advocacy groups tied to politically or socially sensitive causes have seen their accounts closed, raising concerns about free speech and financial discrimination.
Why Debanking Is Not An Issue For Credit Unions
Unlike banks, credit unions operate as member-owned, not-for-profit cooperatives. This foundational difference continues to steer credit unions’ mission in ensuring member communities receive affordable access to financial services and products, regardless of members’ industry, background, or belonging.
Additionally, credit unions are not driven by the same profit and reputational pressures that often influence banks’ decisions. For example, “defense” credit unions, which serve military or veteran members and their families, have a long-standing tradition of assisting these communities and individuals, such as veteran entrepreneurs, who may be underserved by traditional financial institutions. Every month, we see credit unions’ stories of the impact their tailored services and programs, or their service-driven foundations, have on America’s communities and businesses.
Credit unions also stand out as a better option amidst these concerning trends due to their lower vulnerability to bank runs and liquidity crises—the same issues that contributed to the collapse of Silicon Valley Bank in March 2023.
According to Fox Business, even the largest credit unions have only 9% of their deposits uninsured, compared to an average of 36% for the largest 800 banks in the U.S.
Regulatory experts make a point in noting that credit unions, which serve individuals rather than corporations or stakeholders, are inherently less susceptible to the risks that have destabilized traditional banks. Although deposits exceeding $250,000 at both credit unions and banks remain uninsured, credit unions carry significantly less exposure to the kinds of risks that led to SVB's failure.
The article also noted comments from Dr. Angela Vossmeyer, an associate professor of economics at Claremont McKenna College and faculty research fellow at the National Bureau of Economic Research, stating credit unions are in a stronger position than banks when it comes to liabilities, as a higher percentage of their deposits are insured. This structural advantage makes credit unions a safer choice for individuals seeking financial stability.
The National Credit Union Administration, the federal regulator for credit unions, enforces strict safety and soundness standards while preserving credit unions’ ability to serve diverse member needs. This framework ensures that credit unions remain a reliable and inclusive option even as banks become more restrictive.
Real-Life Impacts Of Debanking
The consequences of debanking extend beyond inconvenience. For small businesses, losing access to financial services can mean losing the ability to process payments, manage payroll, or secure loans for growth. For individuals, particularly those in vulnerable communities, it can mean losing access to checking and savings accounts or being forced to rely on predatory financial alternatives.
For example, cryptocurrency businesses unable to secure banking services face operational challenges that undermine innovation and competitiveness. Firearms manufacturers, without access to traditional loans, struggle to expand operations or weather economic downturns. Nonprofits and advocacy groups risk losing their ability to fundraise or support critical causes, exacerbating financial exclusion.
A Beacon Of Stability
Amid this growing crisis, credit unions offer their community-focused approach, combined with an enduring commitment to member service. While not immune to regulatory challenges, credit unions serve an important role in ensuring individuals and businesses have a reliable financial partner.
As the debanking debate continues, it is clear that credit unions provide a critical solution to a deeply troubling trend. By acknowledging this, we can continue to protect our economic prosperity while protecting individuals and businesses from the uncertainty of debanking practices.
Jason Stverak is Chief Advocacy Officer at the Defense Credit Union Council.