- Key insight: Banking experts say deputizing banks in immigration enforcement would have caused mass exodus of customers.
- Supporting data: Treasury lowered reporting thresholds to $200 in border ZIP codes; expanded geographic targeting orders.
- Forward look: The decision to delay the proposal eases bank concerns, for now.
Banking experts welcomed the White House's decision to delay a proposal that would have required banks to collect citizenship information from customers.
The reversal, first
The administration's consideration of the proposal, originally
Treasury and the Financial Crimes Enforcement Network have lowered reporting thresholds for money services businesses from $10,000 to $200 in 30 various zip codes in Texas and California along the U.S. border. The administration
"President Trump has directed his administration to pursue the total elimination of terrorist drug cartels to keep Americans safe,"
A citizenship-data mandate would have redefined how banks assess customers, says Anisha Steephen, a former Treasury senior advisor and fellow at the Roosevelt Institute. She says the approach would blur the line between financial regulation and immigration enforcement.
"Requiring banks to collect and report citizenship status isn't a banking policy," Steephen said. "It's immigration enforcement outsourced to private financial institutions."
Steephen said know-your-customer rules are meant to verify identity and not legal status. The Trump order likely would have limited access to banking, she added, which in turn could push more activity into the shadows, making it harder to track financial crimes.
"A delayed bad idea is still a bad idea. This proposal would impose significant operational burdens on banks and backfire economically, but more importantly, it misuses know-your-customer rules, which are designed to verify identity and prevent financial crime — not to serve as tools for immigration enforcement," Steephen said. "Pushing immigrants and mixed-status families out of the regulated banking system would make financial activity less transparent and harder to monitor. The administration should scrap this proposal altogether; it risks undermining financial stability and imposing real economic costs."
Andrew McCarthy, a senior managing director at FTI Consulting, said the changes would ripple across banks' core systems.
"Because KYC is the spine of financial crime compliance programs which reaches across entire financial institutions — business, risk, technology operations and compliance — a change such as this would be very complicated and will have knock-on effects that will require significant time to implement, impacting the banks, their employees and customers," McCarthy said.
He added that collecting citizenship data could drive customers out of the formal financial system.
"Citizenship was historically not something to collect for the simple reason that by doing so, the government could push large portions of individuals and businesses out of the financial system and into informal, underground systems (e.g., hawala) where no oversight, regulation, and protection exists for customers," McCarthy said. "In these circumstances, the government would struggle to collect taxes and track economic activity on a potentially large portion of the population."
Some bank regulatory policymakers have minimized the burden such a proposal would cause for banks. At a February Senate Banking Committee hearing, Comptroller of the Currency Jonathan Gould
"I think the additional burden would be minor," he said, even as industry participants warned the changes could require significant system overhauls.
