House Republicans demand FDIC punish 'Operation Choke Point' operators

House Republicans accused banking regulators of failing to properly address concerns stemming from a contentious effort to curb risky banking activity in certain industries.

Rep. Sean DuffySean DuffyBehind the scenes on Day 2 of the Republican convention Dozens of GOP lawmakers staying away from Trump's convention Leaders appoint allies, adversaries to Puerto Rico growth task force MORE (R-Wis.) called on a top banking regulator to fire top employees or step down himself after certain businesses saw their accounts shuttered as part of a government program known as “Operation Choke Point.”

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Banking regulators have since walked back guidance that was interpreted by some as calling for banks to halt operations with entire types of businesses, but GOP lawmakers say regulators that pushed that notion still need to be held accountable.

“I fear that activists at the Department of Justice and [Federal Deposit Insurance Corporation] are abusing their power and authority,” said Duffy. “They’re weaponizing government to meet their ideological beliefs.”

Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation, told lawmakers Tuesday that bank examiners had misinterpreted regulatory guidance to suggest that entire categories of businesses should be barred from traditional banking services. He said earlier guidance outlining high-risk areas had been “misunderstood,” leading examiners to believe that banks should not be providing services to certain types of businesses, like payday lenders and firearms dealers.

“The fact that the list was viewed that way…was a failure,” he told a House Financial Services subcommittee. “We believed it was being misunderstood and being misapplied.”

He added that the regulator has taken steps to make clear who banks can do business with, and how examiners should monitor them.

At the beginning of 2015, the FDIC issued guidance emphasizing that banks should evaluate the risks presented by individual clients, rather than refuse to do business with certain types of businesses wholesale. That came after the FDIC withdrew its list of “high risk” business categories in July 2014, and issued new guidance emphasizing that entire categories should not be effectively blacklisted from banking services.

Republican lawmakers have been probing “Operation Choke Point” for years, and have accused the Justice Department of pushing banks to cut ties with industries it finds fundamentally objectionable.

On Tuesday, Gruenberg said it was a mistake for some, including officials at the FDIC, to interpret the initiative as a green light to halt business with all sorts of companies, regardless of their individual merit. He added that the FDIC’s Inspector General is currently examining the matter.

But Duffy accused Gruenberg of “slow walking” the matter, having failed to punish FDIC employees that pushed banks to cut services with certain industries. He went so far as to suggest that if Gruenberg did not punish those employees, he should step down as chief regulator.

“I don’t think you want to hold them accountable,” said Duffy. “If you can’t go after the problem in the FDIC…you have no place as the chairman.”

For their part, Democrats largely defended the FDIC as attempting to properly implement policy and protect the banking sector.

“We should not confuse the FDIC doing its job as a regulator as evidence of it doing anything more than its mission,” said Rep. Al Green (D-Texas).

Green also emphasized that the program was initiated by the Justice Department as a way to try and combat fraudulent behavior, and the FDIC was charged with implementing it.

"Mistakes have been made. You've done what you could to address them," he said.