US senators sent a letter to banking regulators questioning the de-banking of the crypto industry and requesting clarification on their guidance.
US senators have sent a letter to Jerome Powell, Chairman of the Federal Reserve System (Federal Reserve), along with Chairman Gruenberg of the Federal Deposit Insurance Corporation (FDIC) and Acting Comptroller Hsu of the Office of the Comptroller of the Currency (OCC). The senators expressed their concerns about the banking regulators’ recent statements on heightened supervision for crypto-related activities.
According to the senators, the banking regulators’ coordinated behavior to call for heightened supervision has caused banks to reconsider providing banking services to the crypto sector. That led to the unexpected closure of crypto firms’ bank accounts. This action by the regulators is reminiscent of Operation Choke Point. This was an initiative by the Obama Administration. In the latter, federal regulators pressured financial institutions to cut off financial services to certain industries. That happened simply because those industries were disfavored by regulators and policymakers.
The senators stated that even though the banking regulators’ actions towards the crypto industry may have emanated from different regulatory concerns, the outcome is the same as Operation Choke Point – the de-banking of the crypto industry in America. They stressed that regulators should not punish an entire industry for the problems of a few. Instead, they should provide updated guidance and proposed rules for public comment so that lawful businesses can have access to banking services. This way, banks wishing to engage in issuing or holding principal crypto assets have clear rules to follow.
Do Banking Regulators Discriminate against Crypto?
The senators worry that overreaching behavior by the banking regulators will inevitably bleed into other legal industries. That could potentially lead to any industry becoming disfavored based on a given regulator’s ideological perspective. They have requested that the banking regulators answer questions related to the release of their recent guidance. That includes justifying how the heightened scrutiny over crypto-related firms helps protect consumers, whether banks are allowed to provide financial services and lend to crypto firms under the guidance, and whether risk diversification was part of the analysis before the guidance was released.
The senators have also asked if there is an internal discussion or a pending plan by any of the banking regulators to release similar guidance for other disfavored industries, how the OCC is ensuring that national banks provide the crypto industry with fair access to financial services and whether the recent crypto-related guidance conflicts with policies released in 2019 related to the Operation Choke Point settlement.
Concerns Over Bank-Issued Stablecoins
Furthermore, the senators have pointed out that the President’s Working Group on Financial Markets, which included the bank regulators, released a report and recommendations on stablecoins in 2021, recommending that legislation should require stablecoin issuers to be insured depository institutions. However, in the January 3, 2023, Joint Statement, the regulators articulated that “issuing or holding as principal crypto-assets … is highly likely to be inconsistent with safe and sound banking practices.” The senators requested an explanation of how the regulators recommended that only banks should issue stablecoins. But, they are now saying that doing so would be unsafe and unsound. They have also asked for clarification on how banks who do want to engage in issuing or holding as principal crypto-assets can do so consistent with the regulators’ supervisory and regulatory requirements.
In conclusion, the senators are requesting that the banking regulators provide clear guidance and rules for lawful businesses to access banking services. They also requested for banks to engage in crypto-related activities while adhering to the highest standards of conduct and respecting the rule of law. They have also stressed that regulators should not choose winners and losers based on their partisan or ideological whim. Instead, they should protect the safety and soundness of the banking system.