Federal regulators and the Supreme Court have effectively ended the practice of "debanking" – denying financial services to disfavored industries. The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp. (FDIC) issued a final rule this week, removing "reputational risk" from bank supervision. This rule, effective June 9, not only halts the practice but also exposes banks to potential litigation regarding past decisions.

The new regulation covers a five-year period of board-level decisions reviewed by the OCC. Banks that previously denied services based on reputational risk now face legal challenges. The implications are significant, as this shift could lead to substantial legal exposure for financial institutions.

On June 10, the day after the rule took effect, major banks faced immediate scrutiny. The U.S. Attorney’s Office in the District of Columbia reportedly subpoenaed JPMorgan Chase, Bank of America, and Wells Fargo. The subpoenas seek information on whether their past account closings violated laws such as the Financial Institutions Reform, Recovery and Enforcement Act.