Overview of the Executive Order
President Donald Trump’s executive order focuses on strengthening banks’ “know your customer” procedures. It emphasizes more comprehensive vetting of clients’ backgrounds, with special attention to their immigration status. Titled Restoring Integrity to America’s Financial System, the order addresses risks linked to extending credit or financial services to non-citizens who are considered inadmissible or removable. Regulators are instructed to guide banks in curbing “unlawful” financial activities.
Implications for Banks and Customers
The directive stops short of a rumored citizenship check mandate, which experts warned could pose significant challenges for banks and limit access for millions. Nevertheless, the order creates new regulatory demands likely to affect banks and their clients. The White House stressed that the measure aims to mitigate “national security and public safety risks” by targeting “illicit cross-border financial activity.” Analysts caution that increased scrutiny of non-citizens’ financial activities might lead to reduced tax filings and a projected loss of $479 billion in tax revenue over the coming decade.
Guidance for Banks
The plan had been previewed by the administration, suggesting banks might need to collect citizenship information. Treasury Secretary Scott Bessent saw the directive as reasonable, questioning why the banking system lacks data on its users. Tuesday’s order instead calls for the treasury secretary to provide guidance within 60 days on risks associated with non-authorized financial activity. Alerts will highlight potential payroll tax evasion, non-U.S. documentation reliance, and the use of individual taxpayer identification numbers (ITINs) for credit applications.
The White House notes that using ITINs instead of Social Security numbers might suggest unlawful employment of non-citizens. According to a 2024 study by Urban Institute, the market for ITIN loans issued between 5,000 and 6,000 mortgages in 2023. The order further warns banks about the dangers tied to lending to individuals potentially facing deportation.
Banking Sector’s Reaction
The U.S. banking sector largely supports the initiative. Rob Nichols, president and CEO of the American Bankers Association, expressed commitment to maintaining a secure financial system and working with the administration to prevent bad actors from accessing banking services. However, some experts warn of the new compliance demands this order imposes on banks. Kathryn Judge, a Columbia Law School professor, stated that banks already handle due diligence and reporting to combat illicit finance but the order could add further burdens.
Judge explained that if aggressively implemented, the executive order might impose procedural obstacles for anyone seeking basic banking services, potentially discouraging utilization of bank services.
Future Developments
Alongside this executive order, President Trump signed another on modernizing regulations for financial technology firms. Regulators have been instructed to review existing rules that may hinder “financial innovation” and consider granting these emerging firms broader access to key banking infrastructure, including Federal Reserve-operated payment systems.
Looking ahead, Treasury Secretary Bessent is tasked with evaluating whether current bank secrecy regulations need updates. These updates could help banks effectively identify account owners when necessary, thus addressing risks linked to unlawful activities.