For years, finding willing banking partners has been a major struggle for crypto companies. With many major banks refusing to do business with crypto, doing business was a struggle. In particular, crypto exchanges found it increasingly difficult to offer crypto-to-fiat offramps, which are key for their business.
While many explained the issue as inherent risks in crypto, others suspected direct involvement from regulators. Recently, the issue came under scrutiny by the US Congress. Congress is now asking why legitimate crypto businesses couldn’t find banking partners.
In early February, the House Committee on Financial Services and the Senate Banking Committee held hearings about banks refusing services to crypto companies. The hearings highlighted Operation Chokepoint, an Obama-era practice of using regulators to control the banking industry.
Namely, in 2017, the Justice Department under Donald Trump claimed that under Obama, regulators allegedly pressured banks to cut ties with several industries. Some of the targeted industries were pornography and payday lending. However, when Trump left office, regulators allegedly used the same practice to target crypto firms.
Fed Chairman Confirms Crypto Debanking
Specifically, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of Currency (OCC), allegedly pressured banks to cut ties with crypto. Notably, in January 2023, the three agencies issued a joint statement on the inherent risks of banks offering services to crypto firms.
The three agencies cited fraud, legal uncertainties, missing disclosures of assets, volatility, and contagion risk. However, they clarified that regulations don’t prohibit or discourage offering services to crypto companies.
In a House hearing last week, Biden-appointed Fed Chairman Jerome Powell confirmed some of the debanking claims. He revealed the large number of complaints of debanking that the Fed received, conceding that at least some of them were real.
Still, Powell denied that the Fed explicitly pressured banks to debank crypto firms. Instead, he argued that the Fed’s guidance was issued in response to crypto’s potential to destabilize the entire US financial system.
To Powell’s credit, the regulatory guidance came after the collapse of the crypto exchange FTX, which lost billions of consumer funds. This guidance also preceded the collapses of several banks, including Silvergate and Silicon Valley Bank, which offered services to crypto businesses.
READ MORE: White House Distances Itself from Musk on SEC Investigation
