FDIC Interim Chair Addresses “Debanking” of Crypto Firms
Federal Deposit Insurance Corporation (FDIC) interim Chair Travis Hill acknowledged the agency’s role in “debanking” crypto firms during a speech in St. Louis on January 10.
The Problem of Debanking
Hill pointed to accounts of crypto-related businesses losing access to banking services without explanation, placing them alongside historically debanked groups such as politically disfavored industries and individuals associated with controversial religious or political affiliations.
He asserted that such efforts are “unacceptable” and incompatible with the FDIC’s mission to reduce the number of unbanked Americans. Hill added:
“A longstanding goal of the FDIC’s has been to decrease the number of people who are unbanked. Efforts to debank law-abiding customers are unacceptable.”
New Clarity on “Operation Chokepoint 2.0”
Hill’s remarks bring new clarity to what critics have called “Operation Chokepoint 2.0,” an alleged effort by the President Joe Biden administration to hinder US crypto industry growth.
Urging Regulators to End Debanking Practices
He further urged regulators to end debanking practices and emphasized that the FDIC must ensure no staff members engage in tactics that pressure banks to drop law-abiding customers.
Nic Carter’s Response
Nic Carter, co-founder of Coin Metrics, said Hill’s admission is a “massive sea change at the agency.” He added that he expects things will “change in a huge way” on January 20, when President-elect Donald Trump takes office.
No More Pause Letters
The interim chair also criticized the FDIC’s current approach to crypto, which he described as overly cautious and stifling innovation.
He highlighted revelations that the FDIC sent “pause” letters to over 20 banks, instructing them to halt crypto-related activities. These actions, he said, contributed to the perception that the FDIC is hostile toward blockchain and distributed ledger technologies.
Recently, Coinbase chief legal officer Paul Grewal shared some of the pause letters, revealing that the FDIC asked banks to halt or avoid offering crypto-related services and simple products such as Bitcoin (BTC) buying.
Resetting the Agency’s Digital Asset Strategy
Hill called for resetting the agency’s digital asset strategy and advocated for clear and transparent guidance on legally permissible activities and how to conduct them safely.
He noted:
“A better approach would have been to outline expectations on the front end, with public feedback, rather than engage in piecemeal enforcement actions.”
Broad Implications of Regulatory Oversight
Hill also discussed the broader implications of regulatory oversight of crypto-related activities like staking and lending. He acknowledged that the FDIC’s cautious stance has hampered innovation and urged regulators to provide timely approvals for activities that meet safety and soundness standards.
Reevaluating the Bank Secrecy Act
The interim chair connected the debanking issue to broader compliance challenges under the Bank Secrecy Act (BSA). He argued that banks often opt for account closures to avoid potential penalties for inadequate compliance, further exacerbating the debanking problem.
Hill called for reevaluating the BSA regime to ensure its implementation does not inadvertently harm law-abiding customers.
Conclusion
The FDIC’s interim chair, Travis Hill, has acknowledged the agency’s role in “debanking” crypto firms and has urged regulators to end such practices. He has also criticized the FDIC’s current approach to crypto, which he described as overly cautious and stifling innovation. Hill has called for resetting the agency’s digital asset strategy and has advocated for clear and transparent guidance on legally permissible activities and how to conduct them safely.
FAQs
Q: What is debanking?
A: Debanking refers to the practice of banks and financial institutions cutting off access to their services, including account closures, without explanation.
Q: What is the Bank Secrecy Act (BSA)?
A: The BSA is a federal law that requires financial institutions to report certain transactions and maintain records of financial transactions.
Q: What is the FDIC’s role in the crypto industry?
A: The FDIC is responsible for ensuring the stability and soundness of the US banking system, including regulating and supervising banks and other financial institutions that offer crypto-related services.
Q: What is the impact of debanking on the crypto industry?
A: Debanking has a significant impact on the crypto industry, as it can lead to account closures, restricted access to financial services, and increased costs for businesses and individuals.
Q: What is the FDIC’s digital asset strategy?
A: The FDIC’s digital asset strategy is focused on providing clear and transparent guidance on legally permissible activities and how to conduct them safely, while also promoting innovation and competition in the financial sector.
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