WASHINGTON, Jan 29: US regulators who want banks to sever ties to risky customers must inform the banks in writing, the Federal Deposit Insurance Corp said on Wednesday, a change sought by Republican lawmakers scrutinizing a probe known as ‘Operation Choke Point.’ The investigation by the U.S. Justice Department is aimed at cracking down on fraud by looking into banks and payment processors that work with businesses suspected of money laundering and other illegal activities. Republicans in the U.S. House of Representatives, however, say the probe is intended to put payday lenders and gun sellers out of business. They say FDIC examiners helped by informally pressuring banks to stop serving those industries.
FDIC officials, who have said Choke Point is a Justice Department operation separate from their bank oversight, have sought to reassure banks that they do not need to cut off relationships with legitimate businesses. As part of that effort, the FDIC said in an internal memo this week that any recommendations to terminate customers’ deposit accounts must be made in writing, vetted by legal staff and discussed with bank managers. Those recommendations also must cite the laws or rules that are being violated. “Recommendations for terminating deposit account relationships cannot be based solely on reputational risk,” said the memo, which Reuters obtained. The FDIC, which provides deposit insurance and regulates many small banks, declined to comment. DOJ spokeswoman Emily Pierce said in a statement that the department only investigates entities for which it has evidence of misconduct and does not target industries or institutions engaged in legal activities.
Representative Blaine Luetkemeyer, a Missouri Republican, introduced legislation in November requiring supervisors to issue any orders to cancel bank accounts in writing. Luetkemeyer said he had heard similar complaints of informal pressure on banks by regulators from other agencies and would push them to issue their recommendations in writing as well.
“We’re very pleased the FDIC has acknowledged their wrongdoing and has accepted our suggestions,” Luetkemeyer said in an interview. He said he had met with FDIC Chairman Martin Gruenberg and Vice Chairman Thomas Hoenig earlier on Wednesday.
The FDIC also released a letter on Wednesday instructing banks to assess individual customers based on their risks rather than decline to serve whole industries. (agencies)
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