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Operation Choke Point

5 min read

Part of Regulation and the administrative state.

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Every episode (3)

Who argued it

Will Duffield · Todd Zywicki · Cathy Reisenwitz

First Amendment · Sex Work

Background

Operation Choke Point was an initiative of the Obama administration in which banking regulators, without authorization from Congress, took legal businesses and told banks they should not lend to them. Todd Zywicki, a professor interviewed by Bob Zadek, described the targets as payday lenders and firearms dealers — “fundamentally just businesses that were unpopular with the Obama administration.” The Weaponization of Consumer Finance (2022) Zadek’s own account of the mechanism is that government, having learned that controlling the financial system controls the country, used its supervisory power over banks to put lawful activities out of business. The Weaponization of Consumer Finance (2022)

The mechanism

On Zadek’s telling, the government could not attack a gun shop directly, because the shop was obeying all the laws, held all the licenses, kept careful records and sold a lawful product. Instead it encouraged banks to close such accounts by declaring that having a gun shop as a customer was an unsafe and unsound banking practice and that the relationship threatened the bank’s institutional reputation. The War on Sex (2022) Without a bank account and a credit card agreement, Zadek argued, a business cannot function.

Zywicki tied the tactic to the structure of banking itself: because banking is intertwined with government starting with deposit insurance, regulators can use supervision — inspecting books and records and judging whether a bank is run in a safe and sound manner — as a lever. He noted that the power has since been expanded to include things like ESG, and that Operation Choke Point preceded that expansion. The Weaponization of Consumer Finance (2022)

The operative concept was reputation risk. Zywicki quoted John Allison, described as the longtime president of BB&T Bank and later president of the Cato Institute, calling this “regulation by raised eyebrow”: banks look at a client and ask whether they really need that payday lender or firearms dealer, and most of the time the banks knuckle under, so that people suddenly find their accounts canceled. The Weaponization of Consumer Finance (2022) Zadek added dating services to the list of targets, and Zywicki observed that abortion clinics were notably not included. The Weaponization of Consumer Finance (2022)

Jawboning and the First Amendment frame

Will Duffield, a policy analyst at the Cato Institute, placed Operation Choke Point within a longer history of jawboning — government officials using informal pressure and threats to coerce private companies into censoring speech or restricting legal activities. He traced the phrase to the 1960s and early 1970s, when executives tried to control prices during record inflation by bullying producers with threats of fewer government contracts or stiffer regulation. That activity was likened to Samson’s vengeance against the Philistines in the book of Judges, where with the jaw of an ass he slays a thousand men; the speech of Presidents Kennedy and Carter was deemed the product of the jaw of an ass, yet could still slay the nation’s bankers and businessmen and keep them in line. ‘Jawboning against Speech’ with Will Duffield (2023)

Duffield’s generalization from the episode is that the more interaction a given industry has with the government, through regulation or government contracts, the more vulnerable its firms are to jawboning — which is why banks, already strictly regulated, offer so many levers to punish a bank unwilling to act on the state’s behalf. ‘Jawboning against Speech’ with Will Duffield (2023) In a companion episode Zadek described the same wink-and-nod: banks must come to government for permission to acquire a branch or another bank, and permission comes with conditions, so banks began rejecting gun shops for deposit accounts. ‘Jawboning against Speech’ with Will Duffield (2023)

The 2022 revival

Zadek introduced the subject in October 2022 by calling Wells Fargo one of the “great recent Great Satans” and stressing that the bank’s action did not appear to be governmental. Cathy Reisenwitz described Wells Fargo dropping the accounts of several legal sex workers — telling them it would not serve them and that they no longer had access to their bank accounts — as part of a widespread, consistent pattern in financial services of excluding even legal sex workers, alongside Visa and Mastercard dropping Pornhub. She attributed it to the firms’ own moral squeakiness, and said it makes no one safer, makes people worse off, and hits the marginalized hardest. The War on Sex (2022)

Zadek framed the Wells Fargo action as the rebirth of Operation Choke Point, which he said first came to light about four or five years earlier and which he had covered on a prior show. He called the practice an obscene overreach of government aimed at a group underrepresented in voting power and not favored in the public’s eyes, and noted the action was stealthy — no press release, it just came out. The War on Sex (2022)

Across episodes

Four episodes touch the topic — the two October 2022 conversations with Cathy Reisenwitz, the December 2022 interview with Todd Zywicki, and the January–February 2023 jawboning episodes with Will Duffield — and the episodes show no development between the earlier and later treatment: the same mechanism, the same reputation-risk rationale, and the same examples recur, with Zywicki supplying the most detailed institutional account and Duffield the historical lineage.

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