Congressmen raise concerns over prudential regulators’ effort to ‘de-bank’ crypto industry

U.S. Congressmen French Hill, Patrick McHenry, and Bill Heizenga told the Federal Deposit Insurance Commission (FDIC), joint letter On April 25th, it requested information regarding regulatory efforts to deny banking services to the cryptocurrency industry.

Republican lawmakers have set a May 9 deadline for regulators to provide all requested information.

“Unfavorable Industry”

Lawmakers wrote in a letter to FDIC Chairman Martin J. said it has put pressure on financial institutions.

Federal health regulators such as the FDIC, OCC, and Federal Reserve have targeted companies in industries such as gambling and tobacco based on arbitrarily defined “reputational risk.”

The bank stopped providing services to companies based on direct guidance from the oversight body and did not need to explain.

The inappropriate practice continued until Congress stepped in and created rules to stop it, the letter said.

The crypto industry is the new troublemaker

Legislators said regulators are once again putting pressure on banks not to serve the industry – the latest target being cryptocurrencies. they wrote:

“Today we see a resurgence of concerted action by federal health regulators to stifle innovation in the United States. There is no clearer example than in the digital asset ecosystem.”

In November 2021, the OCC will require banks providing “services related to digital assets” to provide written evidence to regulators that they are doing so in a “safe and sound manner,” according to the letter. issued a guidance. Oversight agencies then provide banks with a “no objection in writing” to allow them to engage with digital assets.

Additionally, the FDIC issued similar guidance in April 2022, stating that crypto-related activities pose “substantial security and soundness risks” and could affect financial stability. .

Additionally, the FDIC, OCC, and Federal Reserve issued a joint statement in January 2023 directing banks to avoid serving “participants in the cryptocurrency sector.”

Lawmakers said:

“Given the actions of federal prudential regulators, it is not hard to imagine why banks might be reluctant to offer banking products and services to digital asset firms.”

Digital assets are not dangerous

The lawmaker said that “the activity of digital assets is not inherently dangerous” and should not be treated as such.

According to the letter, the regulator has used recent scandals related to the cryptocurrency industry, including the collapse of crypto exchange FTX and Silicon Valley Bank, to advance its agenda.

However, legislators argued that FTX fell due to “run-of-the-mill fraud,” not because digital asset activity was risky. Similarly, crypto-related customers were not the culprit behind the collapse of Silicon Valley Bank and Signature Bank.

The letter says that prudential regulators’ responses to these scandals should focus on fraud and mismanagement rather than “risk mitigating the digital asset industry.”

Lawmakers said the actions taken by these regulators in recent months demonstrated a “coordinated strategy to decouple the U.S. digital asset ecosystem from banks.”