De-risking and de-banking: Implications for Financial Inclusion

Abstract

In this opinion piece, I unravel the nature, causes and effect of de-risking and de-banking and the implications for financial inclusion. De-banking removes people from the formal financial system against their own will by closing their account while de-risking restricts access to bank accounts which creates inconvenience and dissatisfaction. When banks de-risk and de-bank banked adults, their livelihoods, relationships, reputation, and access to essential banking services can evaporate or disappear immediately. Over time, de-risking and de-banking will push people outside the formal financial system and lead them to rely on the informal financial sector which would make financial inclusion efforts counterproductive. I argue that while there may be legitimate reasons for de-risking and de-banking banked adults, such actions, if excessive, wrongful and discriminatory, can have adverse consequences for financial inclusion. I suggest three remedies for combatting de-risking and de-banking. They include using regulation to limit banks’ discretion to de-risk and de-bank people, urging banks to implement FATF’s 2025 guidance on financial inclusion and anti-money laundering and terrorist financing measures, and using regulation or legislation to ensure that the right to own a fully operational bank account supersedes the right of a bank to restrict or close a bank account.