Welcome to Operation Choke Point 2.0

An oil pipeline, guns — and now prisons.

Banks are facing increasing risks not just for their own behavior, but for the behavior of their most politically divisive clients.

After frequent protests from activists, JPMorgan Chase said Tuesday that it would stop financing private prisons. The news follows an announcement by Wells Fargo last month that the bank has also significantly reduced its investments in the private prison industry.

Ramin Talaie/Bloomberg

Private prison firms, which also run some immigration detention facilities, have come under heightened scrutiny in recent years, particularly after reports about children being separated from their parents at the Mexican border at the direction of the White House.

The two banks' decision to back away from these firms is a victory for those concerned about the private prison system. Yet it also speaks to broader challenges facing the financial industry, as it seeks to navigate a sharply divided political climate.

“The overall message is that things that banks have never had to consider before, they have to consider now when it comes to their overall risk management decisions,” said Rolland Johannsen, a senior consulting associate with Capital Performance Group.

But there’s an additional problem for the banking industry. Financial institutions must consider both the impact of any individual decision they make — the cover they might gain by removing themselves from a hot-button issue — as well as the cumulative effect of bowing to outside pressure.

After all, there are signs that such efforts have had a real effect, at least in some cases. Bank of America and Citigroup, for instance, both issued new policies restricting their activity with gun sellers last year in the wake of the public outcry over gun violence after the school shooting in Parkland, Fla. Several banks also distanced themselves from financing the Dakota Access Pipeline in response to heated national protests (though some environmentalists have questioned whether those commitments will prove firm).

When it comes to prison investment, activists and community groups kept up “a very steady drumbeat” opposing JPMorgan’s funding of GEO Group and CoreCivic, two of the country’s largest prison companies, said Ana Maria Archila, co-executive director of the Center for Popular Democracy. Protesters have shown up at the bank's last two annual meetings and recently visited Chief Executive Jamie Dimon's house with a mariachi band in tow, among other confrontations.

"JPMorgan Chase has a robust and well-established process to evaluate the sectors that we serve," a bank spokesman told Bloomberg earlier this week. "As part of this process, we will no longer bank the private-prison industry."

GEO Group and CoreCivic had more than $167 million in total debt at JPMorgan as of March of last year, according to a 2018 report by CPD, and over $28 million at Wells. Large lenders collectively raised $1.8 billion in debt for the two prison companies last year alone, according to Reuters.

The effort also got a public boost from Rep. Alexandria Ocasio-Cortez, who had flagged the issue as being central to her work on the House Financial Services committee.

“If we just targeted the company directly, they’d say, This is our business, this is who we are,’ ” Archila said. “The fact that banks are public facing and have this public image that is about offering services that allow people to prosper … makes them vulnerable. It’s an important choke point for us to use to apply pressure.”

Choke point is an interesting term. The government’s controversial Operation Choke Point program — which sought to investigate banks doing business with gun dealers, payday lenders and other “higher risk” companies — may have ceased with the Obama administration, but it appears that efforts to use banks as a lever for broader social change are just getting underway.

Bankshot is American Banker’s column for real-time analysis of today's news.