Senate Banking advances Scott's debanking bill
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Sen. Tim Scott, in the Banking Committee. Photo: Allison Robbert/AFP via Getty Images
The Senate Banking Committee voted Thursday to advance legislation seeking to strike "reputational risk" from the toolkit of U.S. regulators considering vulnerabilities at financial institutions.
Why it matters: Supporters of the FIRM Act argue that it removes a subjective standard open to abuse by administrations looking to target disfavored industries.
State of play: FIRM, legislation offered by committee chairman Sen. Tim Scott (R.-S.C.), passed on a party line vote of 13 to 11.
- Its next step would be a vote in the full chamber.
The big picture: Debanking became a hot issue over the last several months, particularly within the digital asset industry.
- That industry, and some others, have mounted an increasingly compelling case in recent weeks that it was specifically targeted by banking regulators.
Catch up quick: Critics say the issue began at the start of 2023, when the country's main prudential regulators issued a warning to banks about the crypto business, saying that holding crypto-assets was "highly likely to be inconsistent with safe and sound banking practices."
- In recent months the FDIC has released hundreds of pages of communications with the banks it supervises related to proposed crypto products that appear to show a pattern of endless requests for information.
- And the industry has claimed several instances of crypto businesses — and people connected to them — losing access to basic banking services.
In February, Fed chair Jerome Powell indicated that the central bank would examine the issue, saying officials had been "struck by the growing number of cases of what appears to be de-banking."
The latest: "No federal agency should have the power to cut off access to our financial services industry simply because they disapprove of a customer's politics, business, or industry. That is simply un-American," Senate Banking chair Scott said in his opening remarks.
The other side: In offering an amendment to FIRM, Sen. Jack Reed (D.-R.I.), argued, "Banks routinely apply reputational risk policies and procedures to make sure that they're not doing business with dangerous individuals or groups."
- The amendment failed.
Zoom in: The committee passed two amendments, offered as a package by the chair, including one that incorporated the TAILOR act from Sen. Mike Rounds (R-S.D.).
- That amendment would require regulators to consider the scale of supervisees before imposing new requirements. During the meeting, the senator said this has been an issue for smaller banks in his state.
Go deeper: The GENIUS Act, on stablecoins, also passed the committee today.
