The root cause of debanking is regulators have essentially outsourced the policing of money laundering to financial firms, with penalty for being too lax being 9- or 10-figure fines. Banks are highly disincentived from banking anyone questionable, ensnaring even legit accounts.

Financial institutions face immense pressure to prevent money laundering due to heavy fines imposed by regulators. This leads to debanking where even legitimate customers are affected. Striking a balance between compliance and customer service is crucial in this challenging regulatory environment.