New Executive Order Could Burden Banks Significantly

A forthcoming executive order may lead to banks incurring billions in costs and countless hours of administrative work.

This week, Treasury Secretary Scott Bessent hinted at plans requiring banks to collect citizenship data from both new and existing account holders. When asked about potential pushback, he noted that banks should brace themselves for the change.

“If the Treasury Department and banking regulators deem that necessary, then so be it,” Bessent remarked on Wednesday.

If implemented, this directive could create a complex wave of new logistical challenges for banks. The American Action Forum, a center-right think tank, has estimated that these requirements could add anywhere from 30 million to 70 million hours of administrative tasks, costing between $2.6 billion and $5.6 billion.

While U.S. banks are already obligated to confirm customer identities, such as names and Social Security numbers, citizenship verification is not part of that existing framework. Currently, under the Federal Customer Identification Program, they collect other identification details but not citizenship documents.

An analysis from the American Action Forum suggests that the potential citizenship requirement could upset relationships between banks and customers, affecting numerous accounts.

Chasse Rehwinkel, president of Devon Bank in Chicago, expressed concerns that this citizenship verification demand lacks a clear regulatory benefit, placing additional burdens on banks. He cautioned that some individuals might shy away from banking if they can’t provide the required documentation, including passports or birth certificates, or if their records are outdated.

“Individuals lacking bank access often have similar issues with the overall economic system, which forces them into the arms of predatory lenders,” he noted.

Rehwinkel, a former Illinois banking commissioner, emphasized that while banks accumulate information mostly for safety and fraud concerns, this requirement would merely add layers of regulation without tangible benefits. He suggested it contradicts previous deregulatory efforts initiated during the Trump administration.

“What’s the point of introducing more bureaucracy?” he asked. “More information collection equals more regulations.”

Increased Compliance Costs and Customer Withdrawals

George Browneg, a professor at the University of Southern California’s Marshall School of Management, stated that the rule would undoubtedly escalate costs for banks.

He shared, “New onboarding procedures, system upgrades, and legal audits—these are ongoing expenses, not one-time fees.” The requirement for banks to gather citizenship data, possibly for current account holders, would result in additional compliance costs and potential customer loss. It’s likely that banks will pass some of these costs on to consumers, possibly through increased fees.

According to Browneg, discouraging people from engaging with banks seems like an obvious outcome, especially for those attempting to evade deportation, individuals with unclear citizenship statuses, or dual citizens apprehensive about cross-border issues.

He added that wealthy and international clients, who can easily shift their financial affairs elsewhere, may also withdraw due to these changes.

Browneg noted the possible advantages of the rules: better tracking of financial flows, improved tax compliance, and more effective identification of accounts linked to certain jurisdictions. However, he reminded that money laundering risks are often influenced by factors beyond citizenship.

Anil Kashyap, an economics and finance professor at the University of Chicago Booth School of Business, raised privacy concerns tied to this requirement.

“People may hesitate to share additional personal details with their banks,” he commented. “It’s already been discussed that some may avoid participating in the financial system due to privacy worries.”

The proposed documentation requirements, if enacted, would likely affect a vast majority of Americans. According to the FDIC, as of 2023, about 96% of U.S. households—which amounts to around 128 million—have a bank account.

Additionally, there are ongoing immigration-related policy shifts under the Trump administration that have already caused significant issues for banks hoping for easier operations amidst deregulatory expectations.

For instance, the President raised the H-1B visa application fee to $100,000 in September, leading to a decline in applications at major financial firms like JPMorgan and Goldman Sachs.

Most recently, he announced a limit on credit card interest rates to 10%, a move many on Wall Street criticized for reducing credit accessibility. JPMorgan’s CEO remarked that it could lead to an “economic disaster.”

The Treasury Department and the White House have not provided comments regarding this situation.