Banks are in the business of paying interest on deposits so that they can lend out the funds deposited with them at a higher rate of interest. Some will respond that the latter is a statement of the obvious, but sometimes the obvious requires stating.
In particular it requires stating as banks are accused of “debanking” customers for political reasons. Supposedly organizations or businesses with the wrong politics or business purposes are increasingly the victims of politicized banks that are refusing their business.
Which raises a basic question: why? Seriously, why would banks in the business of putting money to work refuse the money of those whose politics they allegedly don’t like? Why indeed. And if the answer is that ‘woke’ banks merely discriminate against those with the wrong right-wing politics or business purpose, please stop right there. Rare is the business that the can enter a market with plans to turn up its nose to those thinking or doing the “wrong” thing.
The above would particularly be true in states like Florida and Texas that are known to lean right. For banks to enter the aforementioned states with designs on offending majorities in both insults common sense. Banks quite simply aren’t in the business of politics, rather they’re once again in the business of paying for deposits so that they can lend them out.
At the same time, and quite unfortunately, banks not interested in politics increasingly find that politicians are interested in them. Which is a major problem, for banks.
To see why, travel back in time to 2008 and the Troubled Asset Relief Program (TARP). TARP was crafted to provide financial support for banks whose assets were no longer deemed credible by investors. But for one problem.
Many of the banks “asked” to take TARP funds didn’t want or need them. They were going to survive the turbulence of 2008 intact, after which they knew then what’s always been true: money is never free nor is money given out free of self-interest. Put another way, a federal government acting as lender to banks would want a future say in how those banks operated, how much they paid their executives, and yes, who they did or did not do business with.
Which is but a hint that the “ask” related to TARP in 2008 was in reality a demand. The view among the federal officials who administered TARP was that every bank needed to take the funds as a way of hiding from the marketplace which banks needed the money, and which ones didn’t. Which was an absurd demand, and readers surely know why.
Markets are nothing if not intensely wise. They’re the combination of all known information. And the markets of 2008 were well aware of which banks needed the money.
Except that the banks “asked” to take TARP funds for the most part took them. Why? The answer to the previous question in 2008 explains alleged debanking practices in 2024: governments on all levels and their regulators can shut banks down. And they can do so quickly. Back in 2008 banks that didn’t need the money accepted the TARP funds because to refuse them was to risk their ongoing ability to operate.
There’s your “debanking” story. Since members of the political class like and dislike certain political activities, industries or both, banks are loathe to open accounts for entities seen as out of favor with the political class.
Think crypto past and present. Known as a way around money-laundering laws, crypto hasn’t always been a favorite of politicians. And so long as politicians are picking favorites, banks will protect their shareholders by not getting on the bad side of politicians.
Just don’t call what’s happening “debanking.” Banks want your business. Sadly politics get in the way of banks operating as banks.
