South Carolina Senator Tim Scott, who chairs the US Senate Banking Committee, is spearheading an effort to eliminate regulatory oversight of customer repetitional risks in banking.
Scott has introduced a bill designed to put an end to debanking, a controversial practice that has been used to deny financial services to certain businesses and individuals based on subjective risk assessments.
We obtained a copy of the bill for you here.
Debanking allows banks to cut off clients deemed to pose “reputational risks.” The Federal Reserve defines this term as “the potential that negative publicity regarding an institution’s business practices, whether true or not, will cause a decline in the customer base, costly litigation, or revenue reductions.”
The broad and vague nature of this definition has led to concerns that financial institutions wield too much discretionary power over who can access essential banking services.
Scott’s legislative push has garnered significant Republican backing, with at least 11 GOP lawmakers co-sponsoring the measure. Major banking industry groups are also lining up in support, including the Bank Policy Institute, which represents many of the country’s largest financial institutions.
“As Chairman of the Senate Banking Committee, I have made addressing debanking a top priority.
This discriminatory and un-American practice should concern everyone, which is why I’ve led my colleagues in working to find tangible solutions. It’s clear that federal regulators have abused reputational risk by carrying out a political agenda against federally legal businesses. This legislation, which eliminates all references to reputational risk in regulatory supervision, is the first step in ending debanking once and for all,” said Senator Scott.
Over the past two decades, debanking has disproportionately impacted a range of industries, including firearms manufacturers, federal prison contractors, cannabis businesses, and cryptocurrency firms. However, the issue has gained heightened attention in recent years, particularly within the crypto sector. Many advocates allege that an intentional effort has been made to exclude legitimate crypto companies from the financial system in the US.
The cryptocurrency industry, in particular, has been at the center of the debanking controversy, with many alleging a coordinated effort, dubbed “Operation Choke Point 2.0,” to stifle the sector. In November 2024, Marc Andreessen, co-founder of Andreessen Horowitz, stated that more than 30 technology and crypto entrepreneurs had been denied banking services, further fueling accusations of financial censorship.
When the GOP took control of Congress in early 2025, they launched hearings to investigate these claims, sparking partisan debates but also finding surprising consensus on the need to curb debanking.
Even Democratic Senator Elizabeth Warren, a frequent critic of the cryptocurrency industry, acknowledged concerns over debanking in a February 5 congressional hearing. “If banks are adopting policies that routinely debank people based on their beliefs or other illegitimate reasons — that’s wrong, it needs to be stopped,” she stated, indicating a rare bipartisan acknowledgment of the problem.
