Regulator and bank trust could be jeopardized in the contentious debate on debanking, a professor warns.

In the realm of banking regulation, the unwritten rules often hold as much weight as the written ones, a fact that scholar Julie Andersen Hill has been exploring deeply. Hill, the dean of the law college at the University of Wyoming, has been delving into the intricacies of banking regulation, with a particular focus on the unspoken understandings that exist between bankers and examiners.

Recently, Hill published a paper in the Texas A&M Law Review, discussing the impact of the debanking debate on public confidence in bank regulators and the banking system. The debanking issue, which has become a particularly hot topic since January with the arrival of the second Trump administration, is crucial to address as it could lead to a decrease in public trust in bank regulators and the banking system.

Hester Peirce, who is proposing rule reforms to tackle the debanking debate, shares similar concerns. Her contribution, set to be published on September 25, 2025, recommends actions related to reputation risk, anti-money laundering law reform, and limiting penalties for banks that don't comply with regulator recommendations.

Peirce also suggests that Congress require regulators to share more supervisory information and banks to reveal reasons related to customer account decisions. This transparency is essential to maintain trust in the government and the banking system, which is vital for the smooth functioning of the economy.

The president's executive order related to debanking is not intended to make banks more risky by forcing them to accept all customers regardless of risk. Instead, it is about ensuring that banks do not discriminate against customers unjustly. The concern about increased risk due to the executive order is based on the possibility of banks offering accounts to those debanked for political reasons.

However, the Office of the Comptroller of the Currency's manual does not condone politically motivated pressure on banks. Addressing the debanking issue is important to confront the potential for the debanking debate to undermine public trust in bank regulators and the banking system.

Regulatory discretion needs to be addressed by Congress for lasting change. Both Congress and regulatory agencies have a role to play in addressing the issues related to the debanking debate. By working together, they can ensure that the banking system remains transparent, fair, and trusted by the public.

Regulator and bank trust could be jeopardized in the contentious debate on debanking, a professor warns.