U.S. Congressmen French Hill, Patrick McHenry and Bill Huizenga sent the Federal Deposit and Insurance Commission (FDIC) a joint letter on April 25 to request information on regulatory efforts to deny banking services to the crypto industry.
Republican lawmakers have set a May 9 deadline for the regulator to provide all requested information.
‘Unfavorable Industries’
Lawmakers said in the letter addressed to FDIC Chairman Martin J. Gruenberg that regulators have previously pressured financial institutions under their oversight authority to stop providing banking services to “politically unfavorable industries” under the Obama administration.
Federal prudential regulators, including the FDIC, the OCC and the Federal Reserve, targeted companies in these industries — such as gambling and tobacco — based on “reputational risks” that were arbitrarily defined.
Banks would stop providing services to companies based on direct guidance from the watchdogs and not have to explain themselves.
The letter continued that this improper practice continued until Congress stepped in and created a rule to prevent it. However, the rule was abolished soon after the Biden administration took office.
The crypto industry is the new black sheep
The lawmakers said regulators are again pressuring banks not to provide services to an industry — with crypto as the latest target. They wrote:
“Today we see the resurgence of coordinated action by federal prudential regulators to suppress innovation in the United States. There is no clearer example than in the digital asset ecosystem.”
According to the letter, the OCC issued guidelines in November 2021 requiring any bank providing “services related to digital assets” to provide written proof to regulators that it did so in a “safe and sound manner”. The watchdog would then provide a “written no objection” to the bank, allowing it to deal with digital assets.
In addition, the FDIC issued similar guidance in April 2022 stating that crypto-related activities pose “significant security and soundness risks” and can affect financial stability.
Additionally, in January 2023, the FDIC, OCC, and Federal Reserve issued a joint statement directing banks not to provide services to “participants in the crypto asset industry.”
The legislators said:
“Given the actions of federal prudential regulators, it’s not hard to imagine why any bank would hesitate to offer banking products and services to digital asset firms.”
Digital assets are not risky
The congressmen said that “digital asset activity is not inherently risky” and should not be treated as such.
According to the letter, regulators have used recent scandals involving the crypto industry — such as the collapse of crypto exchange FTX and Silicon Valley Bank — to further their agenda.
However, lawmakers argued that FTX fell not because digital asset activity was risky, but because of “everyday fraud”. Similarly, crypto-related clients were not the cause of the collapse of Silicon Valley Bank and Signature Bank.
The letter said that prudential regulators’ response to these scandals should be to focus on fraud and mismanagement and not “risk reduction of the digital asset industry”.
The lawmakers said the actions taken by these regulators in recent months point to a “coordinated strategy to debank the United States’ digital asset ecosystem.”
