By Andrea Shalal, Pete Schroeder and Nupur Anand
WASHINGTON/NEW YORK (Reuters) -The White House is preparing to act against banks for allegedly dropping customers for political reasons, sources said, after President Donald Trump said he believes banks including JPMorgan and Bank of America had discriminated against him and his supporters.
A draft of an executive order, reviewed by Reuters, instructs regulators to review banks for “politicized or unlawful debanking” practices. The order could authorize monetary penalties or other disciplinary measures against violators.
It is likely to be announced as early as this week, two industry sources said.
The White House had no immediate comment on the reported order.
Trump’s criticism adds to pressure on America’s largest lenders but also shows how the president’s personal slights and business interests are reflected in his administration’s policies, which critics say raise conflicts of interest. The sprawling Trump business empire has been placed in a trust, but it is still ultimately owned by the president.
“While other moves (such as the tariffs) reflect his own economic assessment, this seems to reflect his personal beefs,” said Peter Ricchiuti, senior professor at Freeman School of Business, Tulane University.
“If it leads to clear retribution against the named banks it would lead to another issue for the financial markets.”
Bank of America shares were flat and JPMorgan was last down 0.4% after losing 0.6% and 1% respectively on Tuesday.
An executive order against the banks would come after Trump said in a CNBC interview on Tuesday that the country’s top two lenders had previously rejected his deposits. Trump said, without providing evidence, that the banks’ refusal to take his deposits indicated that the administration of former President Joe Biden had encouraged regulators to “destroy” him.
“They did discriminate,” Trump said of actions taken by JPMorgan after his first term in office. “I had hundreds of millions, I had many, many accounts loaded up with cash … and they told me, ‘I’m sorry sir, we can’t have you. You have 20 days to get out’.
“They totally discriminate against, I think, me maybe even more, but they discriminate against many conservatives,” he said.
Trump said he subsequently tried to deposit funds with Bank of America and was also refused before eventually splitting the cash.
“I ended up going to small banks all over the place,” he said. “I was putting $10 million here, $10 million there, did $5 million, $10 million, $12 million,” he said, without naming the lenders.
In a statement, JPMorgan did not address the president’s specific claims about his account.
“We don’t close accounts for political reasons, and we agree with President Trump that regulatory change is desperately needed,” JPMorgan said. “We commend the White House for addressing this issue and look forward to working with them to get this right.”
BofA also did not address Trump’s specific claims.
‘REPUTATIONAL RISK’ ISSUE
During Biden’s administration, regulators were able to scrutinize banks’ decisions on the basis of reputational risks, a source familiar with the matter said. Reputational risk is defined as the potential for negative publicity to hurt a bank’s business or lead to costly litigation.
Lenders were under intense scrutiny and pressure to weigh reputational risks when dealing with Trump because of his legal woes, another source familiar with the situation said.
JPMorgan has a banking relationship with members of the Trump family that dates back years and also banks a number of campaign accounts linked to Trump, the source said.
After Trump took power, the Federal Reserve announced in June it was directing its supervisors to no longer consider reputational risk when examining banks. The metric had been a focus of industry complaints.
“What the White House is doing is telling the banks not to hide behind regulations to deny loans or banking relationships,” said Wells Fargo bank analyst Mike Mayo. “Banks can use their normal underwriting standards and deny services, but not blame regulators or use reputational risk as a justification.”
BofA said it welcomed the administration’s efforts to clarify the policies.
“We’ve provided detailed proposals and will continue to work with the administration and Congress to improve the regulatory framework,” the bank said.
Trump in January admonished the CEOs of JPMorgan and BofA for denying services to conservatives. At the time, the two banks denied making banking decisions based on politics.
‘REGULATORY OVERREACH’
Banks have argued that any complaints about “debanking” should be aimed at regulators, saying that onerous rules and overzealous bank supervisors can discourage them from engaging in certain activities.
“The heart of the problem is regulatory overreach and supervisory discretion,” the Bank Policy Institute, an industry group, said in a statement.
Lenders have held discussions around debanking and weighed scenarios around a potential order, the first source said.
Banks are also hopeful the administration may change anti-money laundering laws that they say are outdated and burdensome, the source added.
(Reporting by Andrea Shalal and Doina Chiacu; Additional reporting by Pete Schroder, Nupur Anand, Tatiana Bautzer and Saeed Azhar;Editing by Nick Zieminski and Nia Williams)