FIRM Act – Why It Should Worry You, And The “Debanking” Distraction
By Meron Lemmi
Recently, some of the most politically influential industries — fossil fuels, firearms, private prisons, crypto — have been crying foul about so-called debanking, accusing banks of unjustly denying them financial services because of supposed political biases. This is part of a larger misinformation campaign that is hijacking civil rights language to frame powerful industries as victims of discrimination and achieve their deregulatory goals.
Unfortunately, their campaign has been gaining traction in Congress. The Senate Banking Committee Republicans passed the Financial Integrity and Regulation Management (FIRM) Act, which would ban regulators from considering reputational risk in bank supervision, on a party-line vote in March. A few weeks later, Democrat Rep. Ritchie Torres (NY-15) joined Republican Andy Barr (KY-6) and more than a dozen other Republicans in introducing a companion bill in the House.
To make matters worse, banking regulators aren’t even waiting for the FIRM Act to become law before implementing its provisions. In his first meeting as the chair of the Financial Stability Oversight Council, Treasury Secretary Scott Bessent urged banking regulators to abandon reputational risk entirely. At the behest of Bessent, the Office of the Comptroller of the Currency (OCC) has announced that it will no longer examine banks for reputational risk, and the Federal Deposit Insurance Corporation (FDIC) has indicated that they will follow suit. While the Federal Reserve hasn’t weighed in publicly, Fed Board member Michelle Bowman, a known advocate of deregulation, has been nominated as the next Vice Chair for Supervision.
In a recent webinar hosted by Americans for Financial Reform Education Fund, Graham Steele, former Assistant Secretary for Financial Institutions at the U.S. Department of the Treasury, explained that reputational risk doesn’t just disappear because regulators are told to ignore it — but it hamstrings regulators’ ability to respond to it.
Bank regulators across administrations have long formally recognized how a bank’s reputation can affect its safety and soundness, and how the bank’s actions, such as facilitating money laundering or financing climate disasters, can erode public trust and spark crises. “Public confidence is foundational to banking,” Steele said. “If people stop trusting a bank, they pull their money out.”
Steele pointed to the 2023 bank crisis as a textbook example of reputational damage, directly resulting from the deregulation under the Trump administration and heavy crypto exposure, which eroded market confidence in places like Silvergate and Signature Bank, both of which collapsed in part due to bank runs. He also pointed to Wells Fargo’s repeated scandals as an example of reputational damage tied to compliance failures. “That wasn’t a fluke,” Steele warned, “it was the product of ignoring clear risks.”
The industry tantrums about alleged debanking, which misappropriate terms like discrimination, are nothing more than attempts to protect risky, politically powerful industries from reasonable scrutiny. “None of these industries we’re talking about are protected classes,” Steele noted. “But they are demanding protected status in the financial system.”
Ironically, while claiming industry discrimination, many of these same lawmakers are actively trying to dismantle actual individual civil rights, including by attacking diversity, equity, and inclusion (DEI) and anti-discrimination efforts. Real people, particularly people of color, low-income individuals, and immigrant communities, continue to struggle to access banking services. Additionally, the Trump administration falsely listed thousands of immigrants as dead in social security records, effectively cutting their ability to open bank accounts or access credit — literally debanking them — and yet no FIRM Act supporters have protested.
Instead of addressing the real challenges individuals, small businesses, and communities face in our banking system, the FIRM Act flips the script to protect powerful industries, not people. If Congress truly wanted to protect people from banking discrimination, it would pass legislation like former Senate Banking Chair Sherrod Brown’s 2020 “Fair Access to Financial Services Act,” which would prevent banking discrimination for individuals based on the legally protected classes of race, religion, national origin, sex, gender, or sexual orientation.
If enacted, the FIRM Act and broader deregulatory efforts would prevent consideration of reputational risk despite the real threats it can pose to both individual banks and the financial system as a whole. Policymakers and advocates must push back on this false narrative and instead focus on real issues of financial equity. Ultimately, this is about whether we want a financial system that serves the people, not just the fossil fuel industry and crypto bros.
Read the letter AFR and 24 partners sent a letter to the Senate Banking Committee opposing the FIRM Act here.
Graham Steele’s “Banks and ESG” paper and blog post.
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