FDIC retreats on Operation Choke Point?

By Todd Zywicki,

In what seems to be a retreat from its Operation Choke Point initiative, the FDIC has announced new regulatory guidance that instructs banks to judge their relationships with their customers on a case-by-case basis, rather than refusing to provide banking services to entire categories of industries.

The move comes in response to growing complaints that Operation Choke Point was choking off access to banking services for legitimate businesses. According to documents released last summer by the House Oversight Committee, the FDIC’s prior position (at least with respect to payday lenders) had been that if companies really were legitimate, then the burden was on them to prove it. But this latest guidance suggests that in practice examiners and banks were treating it as a categorical rule.

So where does this leave Operation Choke Point? The Washington Times (where I first came across the story) argues that it effectively ends Operation Choke Point. And if the FDIC guidance is taken at face value, that would seem to be the case–it hardly seems revolutionary for the FDIC to say that banks should determine whether to provide services based on the risk profile of each customer, not the “reputation risk” of entire industries. In that sense, it is just stating the obvious.

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