Once Excluded Industries Hope to Secure Banking Ties Under New Administration

The U.S. Senate Committee on Banking, Housing, and Urban Affairs held a hearing earlier this month to explore the effects debanking has had on American businesses and consumers. The hearing — “Investigating the Real Impacts of Debanking in America” — gave banking and business leaders the opportunity to present testimony on the impact debanking has had on their organizations.

Debanking occurs when a bank terminates a customer’s bank account. Banks close accounts belonging to consumers and businesses for a variety of reasons, including to comply with regulatory concerns.

The Biden administration worked to prevent financial institutions from providing banking services to crypto companies in an effort known as Operation Choke Point 2.0. The original Operation Choke Point was an initiative carried out during Barack Obama’s second presidential term that encouraged financial institutions to sever ties with certain businesses, including gun manufacturers and payday loan shops.

Though Operation Choke Point 2.0 may have provided a framework banks can use to shield themselves from risk, its effects have been devastating for debanked businesses.

Nathan McCauley, CEO of crypto company Anchorage Digital, testified at the hearing. He said his business enjoyed a growing relationship with its banking partner over the course of many years. But one day, the bank ended its relationship with Anchorage Digital without providing any warning or explanation. 

In addition to making everyday transactions nearly impossible for business, debanking can also cause collateral damage.

Employees of businesses that suddenly lose banking services may not be able to access their paychecks on time. McCauley said his company had to dismiss one-fifth of its workforce — including 70 U.S. citizens — after losing access to banking services. 

Debanking may also strengthen foreign financial institutions at the risk of weakening banks operating out of the U.S. Charles St. Louis is the CEO of technology firm DELV. He told us that debanking has put crypto companies in a difficult position by forcing them to turn to overseas banking operations and alternative financial systems, and debanking can also harm American innovation.

“Financial markets are interlinked and global, and innovation is not slowing down,” St. Louis told us. “Fundamentally restrictive and anticompetitive regulations only pushes the progress to other countries, and underserves the domestic economy. The best protections for any country concerned about potential risks adopting crypto are the same as what the industry wants: clear rules with a rubric to operate that lets the industry innovate safely, fairly, and competitively.”

The crypto industry isn’t alone in its struggles to establish relationships with banks. Cannabis businesses also face unique challenges when it comes to obtaining financial services. 

The Controlled Substance Act classifies cannabis as a Schedule One substance, meaning it’s illegal at the federal level. Nevertheless, many states have made cannabis legal for medicinal and recreational purposes. Misaligned federal and state laws have created confusion for businesses in the cannabis industry that are seeking business banking partnerships.

We spoke with Scott Lynch, Founder of HashDash, which helps cannabis users locate the strain of the plant that best suits them. Lynch told us that, although HashDash doesn’t actually work with cannabis plants, its position as a business that serves cannabis users made it challenging for the company to find a bank willing to work with it.

“After countless hours on the phone, pitching our case to multiple banks, we were repeatedly denied,” Lynch told us. “We eventually secured an account with a cannabis-friendly bank, but as you know, these are often smaller institutions. While they come with benefits, they frequently lack the sophistication and services of traditional banks.”

Exacerbating the banking struggles of cannabis businesses is the fact that most of their customers pay for their products in cash. Major credit card networks prohibit cardholders from using their cards to purchase cannabis items. Holding a significant amount of cash can make businesses a target for theft. 

Lynch told us that he previously worked at another cannabis business before HashDash. While there, he and his team sometimes had to travel across the country with large quantities of cash just to manage payroll processes, vendor payments, and tax concerns. In addition to creating operating hurdles, traveling with large amounts of cash can also put employees at risk.

Despite the troubles Lynch had to overcome to manage his business without banking partners, he told us the experience did have a silver lining.

“The high barrier to entry in our industry often means less competition,” Lynch said. “It also forces businesses like ours to be more agile, proactive, and creative — qualities that can lead to long-term success.”

Whether debanking practices implemented under the Biden administration are scaled back during President Donald Trump’s second go around in the Oval Office remains to be seen. But recent evidence suggests the tides may be turning.

The fintech Klarna is one of the most prominent names in the burgeoning buy now, pay later industry. The company’s CEO, Sebastian Siemiatkowski, had previously criticized crypto as a “decentralized Ponzi scheme.” But Siemiatkowski reversed course in a post on social media platform X earlier this month, saying that Klarna plans to “embrace crypto.”

And Green Leaf Business Solutions (Green Leaf), which offers outsourced human resources services to companies in the cannabis industry, just announced that it’s launching a 401(k) program for employers in the legal cannabis arena. Green Leaf’s retirement plan is made possible through a partnership with a group of established financial institutions, including First Citizens Bank.

The U.S. still has a long way to go to remove barriers to banking that can make managing a business challenging for companies operating in industries such as crypto and cannabis. But the fact that Capitol Hill is having conversations that center on exposing certain debanking practices as unfair is a step toward creating equitable access to banking services for more of the country’s legitimate businesses.