De-banking

De-banking refers to the action of a financial institution, typically a bank, closing or restricting a customer's access to banking services, including their accounts. This can involve account closures, restrictions on transactions, denial of services like loans or credit cards, or the imposition of higher fees. The reasons for De-banking are varied and can include financial crime concerns, reputational risks, regulatory compliance issues, or the bank's internal risk assessment. It effectively cuts off individuals or businesses from standard financial infrastructure.

De-banking meaning with examples

• A small business owner was de-banked due to repeated large cash deposits, raising concerns about potential money laundering. The bank, following strict anti-money laundering (AML) protocols, decided to close their account. This forced the owner to seek services at a less well-reputed firm, making financial management more difficult and costly.
• Activist groups often face De-banking from institutions that disapprove of their work. Banks might refuse to process donations or close accounts of organizations labeled as politically sensitive or challenging for reputational reasons. This severely hinders their operations and fundraising efforts, leading to increased costs and difficulty in achieving goals.
• Following regulatory changes, a FinTech company providing services to high-risk industries was de-banked by several major banks. Compliance with new regulations and increased scrutiny meant that providing services would be too costly, making the risk too great. The FinTech found limited options for banking support which reduced their services.
• An individual was de-banked after the bank detected multiple instances of fraudulent transactions originating from their account. The bank had to follow security protocols, and blocked the individual's access to their funds. Despite reporting the fraud, the bank’s security measures deemed their account too risky.