“Please take into consideration when you want to come after us down the road for something that Bear Stearns did, that J.P. Morgan was asked to do this by the federal government.” Those were the words of J.P. Morgan CEO Jamie Dimon, at the time of his bank’s 2008 acquisition of ailing Bear Stearns.
Subsequent to doing what it didn’t want to do, J.P. Morgan suffered an Obama administration that suddenly felt it had the right to dictate how the bank operated and compensated its employees, not to mention the lawsuits faced by JPM for the actions of Bear Stearns that predated its acquisition by JPM. Stop and think about what JPM needlessly endured, and consider it when contemplating what’s being said about large national banks today.
In particular, consider the above in light of the ongoing, and rather politicized discussions in Washington about the alleged “debanking” practices of the biggest American banks. On its face, the very notion that those banks would engage in the practice is belied by their ongoing expansion into markets all around the country.
Banks wouldn’t, and indeed couldn’t pick and choose accounts based on the political lean of the individual or organization in consideration of the empirical truth that the U.S. is fairly evenly divided politically. Paraphrasing Michael Jordan, Republicans and conservatives open bank accounts too, and since they do, national banks aren’t nor could they be in the business of turning away half of the potential market for reasons of politics.
At the same time, it’s worth reminding readers that banks are required to operate in a highly regulated environment. And those regulators are powerful, powerful in such a way that they can make life very difficult for the financial institutions that they regulate.
All of which brings us into the present. Depending on the presidential administration in power, there are favored and disfavored industries. Democrats haven’t always taken to arms manufacturers and fossil fuel extractors, while Republicans aren’t big fans of green energy providers. During the Biden years, cryptocurrencies in particular took flight and it was known that the Biden administration wasn’t a fan of these private forms of money that might enable money laundering, exchange of illegal goods, or both.
Without expressing an opinion either way about what’s a good or bad industry, or even what politics are the correct politics, hopefully the treatment of J.P. Morgan back in 2008 and beyond provides clarity when it comes to understanding how much pressure governmental entities can put on banks, and how difficult they can make life for banks that don’t abide their desires…or that do.
It’s a small reminder that to some degree the perceived practices of “debanking” customers or making it difficult for other customers to open up accounts at all isn’t a reflection of politicized banks, rather it’s a reflection of how very politicized the regulators and presidential administrations are that oversee banks. In other words, the problem isn’t solely the national banks, it’s those regulating them.
After that, let’s not forget that banks have a right – and in truth an obligation – to protect their reputations. Harassment by governments is very expensive in dollar terms, but is arguably even more expensive in a business sense as banks develop the “wrong” reputation. Is it any wonder that banks strive to avoid the ire of politicians and regulators.
Of much greater importance, banks quite understandably choose to avoid certain customers and sectors because with or without regulation, reputation is everything in banking. Think about how much brand harm can come to a bank that’s providing services to sectors rife with fraud, or specific businesses populated with potential bad actors.
The simple truth is that banks are in the highly conservative business of convincing individuals and corporations to entrust them with their precious capital. That’s why reputation is so crucial, and it’s also why banks are necessarily choosy. Instead of lamenting the previous truth, and using it to score cheap political points, politicians and pundits should recognize what a fine line banks walk no matter the politicians and regulators overseeing them.
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