Big Banks Are Not Bakers

A s state legislatures and the U.S. Congress continue examining the disturbing trend of politicized de-banking, one of the recurring objections lawmakers hear is that doing so would place banks in a similar position to the business owners in cases like Masterpiece Cakeshop v. Colorado Civil Rights Commission or 303 Creative v. Elenis, in which the owners were in danger of government coercion to express views with which they disagree. But, with little more than a cursory examination, this objection falls as flat as a failed soufflé.

Last year, Tennessee passed the first-of-its-kind legislation prohibiting the practice of politicized de-banking, which is canceling a customer’s account based on his beliefs, speech, or affiliation with certain causes or industries. This year, Idaho has joined Tennessee, and similar legislation is pending in West Virginia, South Carolina, Alabama, and Texas.

Perhaps owing to the trend of legislative action to address de-banking, JPMorgan Chase recently announced policy changes to protect customers, vendors, and employees from discrimination. Interestingly, though, none of the nation’s largest banks — Chase, Bank of America, or Wells Fargo — have admitted to de-banking anyone yet still raise objections to the proposed regulations.

When it comes to the banks’ objection, comparing themselves to cake artists and website designers, it’s important to remember that the First Amendment protects speech, not conduct. Loans, deposits, and bank accounts express nothing; custom-designed cakes and websites often do.

While the government may regulate the opening of a bank account, it can’t force businesses or individuals to express a message they don’t believe. Banks don’t promote views on marriage, gender, or climate change when they open a bank account for a Democrat or a Republican. But the opposite is true for artists like Jack Phillips and Lorie Smith.

When Phillips is asked to create a custom cake with a design that celebrates and symbolizes a gender transition, that cake expresses a message. And when Smith is asked to create a custom website promoting a view of marriage she disagrees with, her words express a message. Their service is speech, so the First Amendment protects their expressive choices. Those artists serve all people but cannot express every message through their custom art.

By contrast, banks that cancel accounts or services because they disagree with the account-holder’s speech elsewhere are denying service to customers because of who they are. The bank is engaging in rank discrimination because the bank expresses no message by choosing whom it serves.

Jack Phillips or any other small business owner in America would likely find it absurd that banks, of all places, would be exempt from these nondiscrimination norms — especially given the special status banks receive from the government. But that approximates the position of banks, especially larger banks.

Banking charters and deposit insurance are granted at the government’s discretion, and that barrier to entry suppresses competition. Banks enjoy preferable legal treatment for loans, payments, and deposit-taking compared with nonbanks. Banks receive exclusive access to services from the Federal Reserve, including access to the Fed’s payment system and the ability to use the Fed as a lender of last resort.

Banks also receive deposit insurance from the Federal Deposit Insurance Corporation, which is backed by the U.S. government’s full faith and credit. This allows banks to pay depositors less interest than would otherwise be demanded because deposit insurance lowers the risk to depositors from a bank failure.

Further, as the 2008 financial crisis showed, there is a history and expectation that the government will prevent the failures of the largest banks through extraordinary means. Banks that are “too big to fail” must be too big to discriminate.

Banks receive all this because they are considered essential to facilitate a lawful, free enterprise economy. This does not mean banks are utilities that must take all comers and never differentiate based on fiscal assessment. But it does mean that if banks are adopting policies that rely on vague and subjective standards such as “reputational risk” to cancel the accounts of customers based on religious or political beliefs, there is a legitimate government interest in ensuring that the American people get the benefit of their bargain with banks.

For all these reasons, comparing a bank’s activities to an artist’s free expression bounces like a bad check. A truly free-market economy must be free of the unjust discrimination some banks are trying to slip past the auditors.