The right for scumbags to bank should be enshrined in law
If you can’t bank, you can’t operate in law-abiding society. Which means that if you’re denied banking, you’re going to turn to unlawful society, because you have to.
Even scumbags should be able to get a checking account.
Let me back up.
When I was at Axios, there was a low grade byline battle between me and the much more famous writer, Felix Salmon, over whether or not the crypto business had any place in the civilized business world.
Felix pretty much felt it didn’t. I thought it did.
In fact, our debate started before I ever got there. He had written that NFTs had no aesthetic merit and I countered him in the first op-ed that I ever wrote at CoinDesk. At Axios, he would write “The crypto dream has died” after the crypto exchange, FTX, fell, and I wrote that “crypto will be fine.” He would write that a pro-crypto president would undermine dollar dominance. I would write that it would preserve it.
And so on.
But there was one Salmon salvo in which he was wrong even as he wrote it, and — worse! — it looked to me that he had written it mainly because he disliked so much the person that had said it, the person he said it to and the third person that amplified it later.
And his wrongness matters, because by telling readers “there’s nothing to see here” he put a combover on an instance in which the United States’ commitment to the rule of law really did breakdown.
After a16z’s Marc Andreessen went on Joe Rogan and talked about crypto firms losing banking services1, Elon Musk amplified the allegations and so Salmon wrote that debanking wasn’t real. Even though I had already covered how it was demonstrably real. And, after that, the stories just kept piling up.2
A regulated industry like banking doesn’t need direct orders from its regulator. It’s happy to take a hint. They took that one. After all, the joint statement wasn’t very subtle.
Reputational risk
(I’m getting to the scumbags.)
We would learn, through hearings in Congress after Trump took office, just how banks had justified denying services to the legal businesses in the crypto industry that had not been accused of wrongdoing. A part of banks supervisor model included a concept called “reputational risk.”
After Congressional scrutiny made it clear that some real shenanigans had been going on between supervisors and their charges, the joint statement got rescinded, the concept of “reputational risk” started coming out of manuals given to bank supervisors, and, as Brogan Law Newsletter’s Alan Gitelman points out, the OCC and FDIC would, this month, explicitly forbid supervisors from instructing banks under its supervision “to close an account, to refrain from providing an account, product, or service, or to modify or terminate any product or service on the basis … of politically disfavored but lawful business activities.”
Case closed.
Dylan Matthews wrote in retrospect at Vox that he’d been wrong about inflation back when “transitory,” “lumber” and “used cars” were getting thrown around. I always respected him for admitting that in hindsight.
If Salmon has corrected his own record, I wouldn’t know because he’s been behind the Bloomberg paywall. I doubt it though.
Long story short: Debanking was real. It was arbitrary. It was not a conspiracy theory. And Senator Elizabeth Warren is cringe.
But the unfortunate crypto debanking arc raises a really important larger issue.
On scumbags
A person can’t really live in modern society without banking, and a business certainly can’t operate without banking.
Banking has been made existential.3
So, in a free society, there should be a right to banking enshrined in law. If you can’t, in practicality, live as a free person without banking, then your right to access those services should be guaranteed.
The ability to bank effectively becomes the ability to transact, and the ability to transact enables your freedom of movement, your freedom to speak and your freedom to protect your own privacy.
If you can’t bank, you can’t exercise your rights.
If banks want to deny you services because you seem like a scumbag, that’s probably going to push you to be more of a scumbag. We don’t want systems that make scumbags scummier! We want to nudge scumbags to engage in socially productive behavior! We want them to accede to the sweet embrace of honest commerce!
And so. I think.
It should never be impossible for a person to get access to a bank account. Savings and checking should be a basic financial service accessible to everyone.
It should also never be impossible for a company that has not been found guilty of any crimes or broken any explicit financial rules to access basic banking services, including payroll, merchant services for point-of-sale, cash management, business credit cards and fraud services.
So it’s good, I think, that the prudential regulators are banning the use of reputational risk as a concept in their oversight of banks. That’s a start. Reputational risk had no basis in objective risk management.
Your financial institution is no less trustworthy because it banks porn stars. It’s less trustworthy if its executives extend porn stars more credit than they can reasonably manage in exchange for lap dances. But it’s also less trustworthy if it does that for anyone else, as well, for any reason, no matter how they make their money.
Risk is probabilistic. It’s not optical.
Solutions
Money is movement, but we’ve built it completely privatized roads (or at least privatized on-ramps) for money. Banks are private, and, under capitalism, one would think a bank should have discretion over its customers.
But, on the other hand, our regulatory system goes pretty far to protect banks’ place in the economy, so the sector does have some public obligation.
I see three options:
Require banks to accept anyone who lives within a certain distance from the bank, but allow them to have a reasonably priced paid tier for its least desirable customers. If it really doesn’t want to serve someone, it could create a fee-based tier. Call it the high risk tier. Regulators would guarantee the fees were appropriate.
There could be a national, public, super barebones bank. Just checking, debit cards, deposits and withdrawals. All online. No branches. It would have a crappy government website. It would be hard to reach a person. But you can deposit a paycheck and pay your water bill and it won’t deny anyone. But it might charge fees.
Do it with the post office.
The principle here is simple: You can be effectively shut out of society if you can’t bank. But you shouldn’t be shut out of society unless a jury of your peers have found you so guilty of something that they also shut you away.
Even if you look and act like you probably are guilty of all kinds of things, you are still entitled to participate in society until you’ve been convicted of something.
And, so, scumbags should be guaranteed the right to bank. Sketchy companies, too.
If it’s legal, it’s not enough to assume someone will bank it. We already know that’s not a reliable heuristic! Biden (and Obama) showed us that. So, the right should be guaranteed.
The rule of law isn’t just this big idea that everyone should be punished for breaking the law equally, that if the mayor gets caught speeding, the mayor should still get a ticket. The rule of law is also about preventing the state from punishing people willy nilly, without allegations of violations and appropriate due process.
Members of the Biden administration had (and have) a fetishistic disdain for the cryptocurrency industry. So the former White House used its powers to arbitrarily and capriciously obstruct its ability to conduct business and build wealth. That wasn’t right.
It’s good that this administration has rolled back its predecessor’s misguided policies, but policymakers should go further. They should guarantee every person and every company has the right to access financial services, at least until a court of law actually finds them guilty of wrongdoing.
If you watch, I think it’s the one part of the conversation where Marc gets a little emotional. I swear there’s a catch in his throat at one point as he discusses it.
My partner on the newsletter, Crystal Kim, had also been pursuing the topic.
This is itself more than a little stupid, but that’s for another day.