US President Donald Trump has signed an executive order barring federal regulators from using “reputational risk” as grounds for increased bank oversight.

The move addresses concerns from the digital asset industry about being unfairly denied banking services, a practice known as “debanking.”

Critics have accused regulators of using reputational risk—officially defined as the potential fallout from negative publicity—to justify restricting banks’ relationships with cryptocurrency companies.

The order follows months of complaints from crypto businesses and individuals who claim their accounts were closed without cause.

The issue has also been discussed in Congress, where Senate Banking Committee Chair Tim Scott is pushing for legislation to limit the use of reputational risk in bank supervision.

Federal agencies, including the Federal Reserve, Office of the Comptroller of the Currency, and FDIC, have already pledged to stop using reputational risk when evaluating banks’ clients.

🔗 Source: The Block

🧠 Food for thought

1️⃣ Crypto debanking follows a documented regulatory pattern from a decade ago

Trump’s executive order directly parallels his administration’s 2017 decision to end the original Operation Choke Point, which similarly removed regulatory pressure on banks serving controversial industries.

The original Operation Choke Point, initiated in 2013, led banks to close accounts for lawful businesses including firearms dealers and payday lenders due to regulatory fears, even when these businesses operated legally 1.

That program officially ended in 2017 when the DOJ acknowledged that “law-abiding businesses should not be targeted based on political affiliations” 2.

The current crypto-focused version, dubbed “Operation Choke Point 2.0” by Castle Island Ventures’ Nic Carter in 2023, represents a similar regulatory dynamic where banks avoid entire industries due to perceived regulatory risk rather than actual legal violations.

This historical precedent suggests that regulatory pressure, rather than explicit mandates, can effectively restrict banking access for entire sectors through risk-averse bank behavior.

2️⃣ Banking discrimination against crypto shows measurable industry-wide impact

The crypto industry’s debanking claims are supported by concrete data showing a stark disparity compared to traditional finance.