President Donald Trump’s crackdown on “debanking” is colliding with a core compliance problem for U.S. banks: the very policies his administration wants to curb have long given lenders a way to cut off customers they suspect of wrongdoing without violating federal secrecy rules, Bloomberg reported.

At the center of the dispute is “reputation risk,” a broad rationale banks have often used to close accounts tied to clients they viewed as potentially dangerous, suspicious, or commercially toxic, Bloomberg said. Banks favored the label because the Bank Secrecy Act requires them to monitor for signs of crime and file suspicious activity reports, but bars them from telling customers when such a report has been made. 

That has created a compliance workaround: when a bank believed a customer might be involved in money laundering, sanctions evasion, elder fraud, or other misconduct but could not say so directly, it could cite reputation risk and end the relationship. Trump’s push to penalize politically motivated account closures now threatens that framework, potentially leaving banks with less room to explain why they are exiting a client, or making them more hesitant to do so at all, according to the news agency. 

In practice, the dilemma is straightforward. If banks say too much, they risk breaching secrecy laws around suspicious activity reporting. If they say too little, they fuel the same opaque debanking complaints now driving the White House backlash. And if regulators strip away reputation risk as a reason for termination, banks may be forced either to keep customers they view as dangerous or to close accounts with even less explanation than before, Bloomberg reported. 

“Reputational risk gave banks cover,” Peter Conti-Brown, a professor of financial regulation and ethics at the University of Pennsylvania’s Wharton School, told the news outlet. “It gave them the ability to say to their unpopular clients it’s time for us to move on because of the regulators.”

Bloomberg illustrated the problem through the case of John Ghazvinian, whose parents lost access to their Citigroup account for months while preparing to move to Portugal. Ghazvinian said Citi never clearly explained the freeze, and it took nearly half a year for the family to recover the remaining balance. Citigroup told Bloomberg it does not comment on individual matters but said it carefully reviews account closures and is committed to proactive communication. 

Read more at Bloomberg