FDIC takes aim at Operation Choke Point

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Banks are being told to assess credit risk on a case by case basis rather than cutting ties with whole lines of business.

In what’s being seen as an attempt to stifle the Obama administration’s Operation Choke Point, the Federal Deposit Insurance Corp (FDIC) called on supervised institutions to take a risk-based approach in assessing individual customer relationships. It wants banks to move away from an approach that has seen them declining to provide banking services to entire categories of customers “without regard to the risks presented by an individual customer or the financial institution's ability to manage the risk”.

The FDIC also made it clear that “reputational risk” was not enough to reason to end a client’s account.

“Financial institutions that properly manage customer relationships and effectively mitigate risks are neither prohibited nor discouraged from providing services to any category of customer accounts or individual customers operating in compliance with applicable laws,” the agency explained. “FDIC examiners must provide notice in writing for any case in which an institution is directed to exit a customer relationship.”

FDIC has been seen as the key player in Choke Point, a policy aimed at snuffing out businesses disliked by the White House.

In December, the House Committee on Oversight and Government Reform published a report detailing the FDIC’s involvement in Operation Choke Point that claimed the body desired its list of “high-risk merchants” to influence banks’ business decisions.

The report said the FDIC and Department of Justice “effectively target legal businesses the administration deemed morally objectionable”. It detailed how the bodies intimidated financial institutions from providing financial services to those firms.