Restoring Financial Privacy and Security

This op-ed was written by Robert Wright, Senior Research Fellow at Libertas Institute and a Senior Faculty Fellow at the American Institute for Economic Research, and originally appeared in RealClear Policy on November 20, 2023.

It’s official. As the New York Times recently reported, some US banks are denying their services to people whose banking activities trigger an algorithm, or whose political views they dislike. The bankers call breaking customers’ financial security and centuries of confidentiality precedent to aid government snoops “de-risking.”

What can Americans do to counter the financial tragedy likely to befall them when their payment cards suddenly stop working? Let the competition begin! If millions of Americans decide to “Bud Light” J.P. Morgan and other megabanks for canceling accounts on flimsy grounds, they would not be acting irrationally. Most should switch to a credit union anyway, if only for the better rates and superior service.

If modern corporate gadflies want to follow in the footsteps of Evelyn Y. Davis and Wilma Soss by showing up at annual stockholder meetings to chastise bankers for threatening corporate profits, more power to them. They can try to pass stockholder resolutions, too, or even change the board of directors.

Investors can also sell their shares in, or even actively short, the badly behaving banks and buy shares in existing banks (alas, not nonprofit credit unions) that signal they will not turn away profitable business on partisan grounds or go out of their way to help the IRS or FBI.

If all of that fails, Americans can establish new financial institutions and payment systems. Or at least they could have when America was a freer place. I provide ample details in my 2019 book, Financial Exclusion, which shows how women, black people, Native Americans, and poor white people built their own financial infrastructure when denied access to mainstream institutions in the nineteenth and twentieth centuries.

Entrepreneurs today, for example, could create a Privacy Bank and attract deposits with state-of-the-art anti-hacking technology and a contractual pledge not to reveal customer information to anyone except as required by law. That might seem like an odd pledge, but like most things, the matter is more complicated than the median citizen assumes.

Before the New Deal, personal banking records were considered sacrosanct. As former president John Quincy Adams put it in 1832, “The transactions of the bank with their customers, are, in the ordinary course of their business, highly confidential; an examination into them by strangers, so far as it implicates the individuals with whom the bank has dealings, bears all the exceptionable and odious properties of general warrants and domiciliary visits.” Bankers who shared personal account information, except under court order, were anathema.

Since the New Deal, the federal government has whittled away at the Fourth and Fifth Amendment protections of personal bank accounts alluded to by Adams. Ostensibly, the changes were needed to combat tax evasion, money laundering, and terrorism. The details are too gory to relate here, but suffice it to say that periodic congressional efforts to stop the slide were ineffectual, leading to nonremedies like those detailed, annual privacy policy statements that no one reads. 

Today, many banks find it easier to simply comply with government information requests than to fight them and will notify affected customers only when required to do so by law. FBI national security letters (called NSLs in the biz), which require nothing more than authorization from an FBI supervisor, often serve as entry. The bank account information acquired can then be shared seamlessly with other federal agencies, like the CIA or the IRS.

So far as I can ascertain, though, nothing but regulatory discretion would prevent a new or existing bank to simply state: “We will not close your account or disclose information about it except when compelled by law. We will immediately inform you of all requests for your account history, so you may exercise your legal rights in the matter. If we fail to provide these privacy services, we will forfeit $X (or X% of your average account balance) to you.”

Financial privacy in America is not yet dead, but we clearly live in an age of “shriveled privacy” as a California judge put it. Americans can try to claw some financial privacy back by calling their representatives in Congress, of course, but it might be more effective to use market-based levers like moving their funds to credit unions or a new Privacy Bank and selling their shares in megabanks or forcing them to heel at annual shareholder meetings.