Debanking Forces Banks Into an “Almost Impossible Balancing Act”

Lori Sommerfield, a partner in Troutman Pepper Locke’s Consumer Financial Services Practice Group, was quoted in the October 7, 2026, Bank Director article, “Debanking Forces Banks Into an ‘Almost Impossible Balancing Act’.”

• For decades, banking supervision largely focused on safety and soundness issues, such as capital adequacy, liquidity and credit quality. However, in the mid-1990s, the federal banking agencies began using a new risk-focused framework, which included examining banks for potential reputational risk as part of the management portion of the CAMELS rating, says Lori Sommerfield, a partner in the consumer financial services practice group at the law firm Troutman Pepper Locke.
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• Scrutiny of nonfinancial risks escalated under the Obama administration. The Justice Department initiated Operation Choke Point to investigate banks that did business with disfavored industries at the time, such as gun manufacturers, payday lenders and fossil fuel producers, which the DOJ believed posed high risk for money laundering activities and fraud, Sommerfield says. Through examinations, regulators applied pressure to financial institutions to avoid or exit relationships with those types of businesses.
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• Although the first Trump administration terminated Operation Choke Point, the Biden administration “took up the mantle by scrutinizing bank relationships with cryptocurrency organizations, Sommerfield says. As part of what was dubbed Operation Choke Point 2.0, federal banking regulators discouraged banks from providing banking services to cryptocurrency firms and other digital asset providers.
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• “It’s a 180-degree difference from the Obama and Biden administrations, which tried to take advantage of the reputational risk rating element, Sommerfield says. The executive order seeks to prohibit debanking activities from taking place going forward, and to identify and remediate debanking activities that have occurred in the past.”
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• Overall, banks face a number of legal and regulatory penalties if they fail to comply with the executive order, Sommerfield says. Consequences can range from examination criticism to being hit with an investigation or enforcement action by a federal regulator or sued by an individual or business alleging they were unlawfully debanked. “The consequences for noncompliance are quite high,” she adds.
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• It’s likely the Trump administration wrote its debanking executive order with protecting conservatives and Christians in mind. But the order doesn’t specify that it protects any particular political or religious affiliations, Sommerfield says.