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Obama Policy That Encourages Banking Discrimination Is Finally Ending

• https://fee.org

Trump has been President for more than 200 days and those of us who want more economic liberty don't have many reasons to be happy.

Obamacare hasn't been repealed, the tax code hasn't been reformed, and wasteful spending hasn't been cut.

The only glimmer of hope is that Trump has eased up on the regulatory burden. More should be happening, of course, but we are seeing some small steps in the right direction.

Let's share one positive development.

Operation Choke Point

Professor Tony Lima of California State University opined back in January in the Wall Street Journal that Trump could unilaterally boost growth by ending a reprehensible policy known as "Operation Choke Point."

…the Trump administration could shut down Operation Choke Point. This program, enforced by the Federal Deposit Insurance Corp., targets "risky" banking customers and pressures banks to deny them credit. It's unnecessary: If these industries are really risky, banks would not want their business. The real purpose of Operation Choke Point is to target industries that are out of favor…, among them: Coin dealers, money-transfer networks and payday lenders. Sales of ammunition and firearms (Second Amendment, anyone?) and fireworks (legal in some states). …Other legal goods and services such as surveillance equipment, telemarketing, tobacco and dating services. …Denying credit hampers an industry's growth. Eliminating Operation Choke Point would encourage growth. It costs nothing. And someday it may reduce enforcement spending.

And Professor Charles Calomiris from Columbia University echoed those views a few weeks later.

Imagine you have a thriving business and one morning you get a call from your banker explaining that he can no longer service your accounts. …That's what happened to many business owners as the result of an Obama administration policy called Operation Choke Point. In 2011 the Federal Deposit Insurance Corp. warned banks of heightened regulatory risks from doing business with certain merchants. A total of 30 undesirable merchant categories were affected…the FDIC explained that banks with such clients were putting themselves at risk of "unsatisfactory Community Reinvestment Act ratings, compliance rating downgrades, restitution to consumers, and the pursuit of civil money penalties." Other FDIC regulatory guidelines pointed to difficulties banks with high "reputation risk" could have receiving approval for acquisitions.

Keep in mind, by the way, that Congress didn't pass a law mandating discrimination against and harassment of these merchants.

The Washington bureaucracy, along with ideologues in the Obama Administration, simply decided to impose an onerous new policy.

In effect, the paper pushers were telling financial institutions "nice business, shame if anything happened to it."

But at least when mobsters engage in that kind of a shakedown, there's no illusion about what's happening.

Telling Bankers Their Business

Professor Calomiris explained that this regulatory initiative of the Obama Administration made no sense economically.

It is rather comical that regulators would use the excuse of regulatory risk management to punish banks. Banks are in the business of gauging risk and have every incentive to avoid customer relationships that could hurt their reputation. Regulators, on the other hand, have shown themselves unwilling or unable to acknowledge risk, the most obvious example being the subprime mortgage crisis in 2008.

And he also explained why Operation Choke Point was such a reprehensible violation of the rule of law.

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