By Doug Wheeler, director of the George Gibbs Center for Economic Prosperity at The James Madison Institute.
Florida’s firearm dealers have seen it. So have faith-based nonprofits, energy companies, and some of the state’s growing crypto businesses. In each case, businesses have faced questions about access to banking services that had less to do with their financial risk than with how regulators viewed their industries.
Much of the debate has centered on a deceptively broad term: “reputational risk.” For years, under the Obama and Biden administrations, federal banking examiners used the concept as part of their supervisory framework, giving regulators considerable discretion to influence how banks handled relationships with entire categories of businesses. Operation Choke Point demonstrated the dangers of allowing federal regulators to pressure banks over the activities of lawful businesses. Banks were faced with an uncomfortable choice: respond to federal examiners or risk running afoul of their regulators.
It is important to distinguish the banks themselves from the regulatory problem. Banks are private businesses, and they have every right to make lending and account decisions based on legitimate assessments of risk. The problem arises when those decisions are influenced by uncertainty about what a federal examiner may consider reputationally risky. A community bank that wants to make decisions based on its customers’ creditworthiness and business prospects should not have to guess whether a lawful customer could create a supervisory problem. That uncertainty can raise compliance costs, discourage lending and make it harder for banks to serve customers whose businesses fall outside the political mainstream.
Congress has an opportunity to put a clearer boundary around that discretion. The Financial Integrity and Regulation Management (FIRM) Act sponsored by Senate Banking Committee Chairman Tim Scott (R-SC), would prohibit federal banking agencies from using reputational risk as a component of bank supervision. The bill does not tell banks whom they must serve or whom they must lend to. It does something much narrower: it limits the government’s ability to pressure banks based on a subjective assessment of a customer’s political, social, or cultural profile. Decisions about whether a customer represents a financial risk should remain with the financial institution.
Following an executive order from President Trump, there is already broad agreement that the old approach needs to change. In 2025, the Office of the Comptroller of the Currency (OCC) announced that it would no longer examine banks for reputational risk. In April, the OCC and Federal Deposit Insurance Corporation (FDIC) finalized a rule codifying reputational risk’s removal from their supervisory programs. In June, the Federal Reserve, FDIC and OCC removed additional references to reputational risk from interagency guidance. The agencies said plainly that supervision should be based on material financial risks and that reputational risk can create unnecessary subjectivity in bank supervision.
That progress is welcome, but regulatory policy should not depend on who happens to be running that federal agency. What one administration changes by rule, another can change again. Congress has the opportunity to establish a durable standard that keeps federal supervision focused on financial and operational risk rather than political judgment.
In July, the House passed the Main Street Capital Access Act with overwhelming bipartisan support. The broader banking package includes a provision based on the FIRM Act that would prohibit federal banking agencies from using reputational risk in the supervision of depository institutions. The bill also includes reforms aimed at tailoring regulation to the size and risk profile of financial institutions and improving transparency in bank supervision.
Some states have tried to address debanking on their own; the concern is understandable, and the inclination to act is to be commended. But national banks are regulated at a federal level and for good reason: making sure services and access are consistent. It’s not hard to see how a patchwork of state standards would create its own problems — especially for Floridians who may also own a business in Alabama or spend half the year in the North Carolina mountains. Banks operating across state lines and having to navigate 50 different definitions of acceptable supervisory risk will not be able to provide the same services at the same cost to customers.
Congress can establish a clear boundary for federal regulators and then leave banks to make their own business decisions within the law. The goal should not be to replace one form of government micromanagement with another. It should be to establish clear rules and give the private sector room to operate.
For Florida, this matters because access to capital matters. The state has a large community-banking sector and growing industries in areas such as financial technology, digital assets, energy, and agriculture. Businesses in those sectors should compete on the merits of their products, financial condition, and the risks they actually present; not on whether a regulator considers their industry politically controversial.
The wider principle is straightforward: federal regulators should focus on whether a bank is financially sound, not on whether its customers are politically popular. Removing an unnecessary source of regulatory discretion would give banks clearer rules and reduce uncertainty, while leaving decisions where they belong: with private businesses operating within the law.
The Senate does not need to create a new program or add another layer of regulation. It needs to set a clear boundary for federal regulators and allow private financial institutions to make their own decisions based on legitimate risk. The House acted, and regulators have begun moving in the right direction. Now the Senate should finish the job by keeping federal banking supervision focused on financial risk, not political judgment.
