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McHenry, Hill, Huizenga Demand Information from Prudential Regulators Regarding Efforts to De-Bank the Digital Asset Ecosystem

Washington, Apr 26 -

House Financial Services Committee Chairman Patrick McHenry (NC-10), Digital Assets, Financial Technology and Inclusion Subcommittee Chairman French Hill (AR-02), and Oversight and Investigations Subcommittee Chairman Bill Huizenga (MI-04) sent letters to the Chair of the Board of Governors of the Federal Reserve System, Jerome Powell, Chairman of the Federal Deposit Insurance Corporation (FDIC), Martin Gruenberg, and Acting Comptroller of the Currency, Michael Hsu. The lawmakers are demanding information related to potential coordinated efforts by the agencies to deny banking services to digital asset firms and the ecosystem as a whole. 

These letters follow the lawmakers’ March requests for information on the FDIC, Treasury Department, Federal Reserve, and Office of the Comptroller of Currency’s actions and agenda toward the digital asset ecosystem moving forward.

Read the full letter to Chair Powell here.

Read the full letter to Chairman Gruenberg here.

Read the full letter to Acting Comptroller Hsu here.

Read common text from the letter to all three regulators below:

“In 2012, the Obama Administration began coordinating to curtail areas of commerce it deemed objectionable. The Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Board of Governors of the Federal Reserve System (Fed) worked together to covertly coerce and pressure financial institutions they supervised to cease banking relationships with customers they deemed risky. The scheme relied on the concept of ‘reputational risk,’ on which banks would rely on guidance offered by regulators to deny services to customers or even terminate existing relationships. These actions affected gun dealers, pawn shops, tobacco stores, and payday lenders. Generally, most banks provided no explanation when closing the accounts or refusing to open new accounts. Only after Congress intervened did regulators stop targeting politically disfavored industries.

“Today, we are seeing the resurgence of coordinated action by the federal prudential regulators to suppress innovation in the United States. There is no clearer example than in the digital asset ecosystem. Since 2021, the federal prudential regulators appear to have taken steps to discourage banks from providing services to digital asset firms and related entities. Soon after taking office, the Biden Administration stopped a rule designed to specifically prevent the improper activity from happening again. On November 18, 2021, the OCC issued guidance encouraging banks to only provide services related to digital assets if they can assure regulators in writing that they can provide the services in a “safe and sound manner” and the regulators provide a written non-objection.

“Later, in April 2022, the FDIC similarly directed all FDIC-supervised institutions to provide the FDIC in writing their intent to engage in or with digital asset-related activities. The FDIC expressed its guidance as necessary to guard against risk. It suggested that ‘crypto-related activities’ could ‘pose significant safety and soundness risks, as well as financial stability and consumer protection concerns.’ Finally, in January of this year, the Fed, FDIC, and OCC, issued a joint statement warning against providing banking services to ‘crypto-asset sector participants.’ Given these actions by the federal prudential regulators, it is not hard to imagine why a bank would be hesitant to offer banking products and services to digital asset firms.

“Digital asset activity is not inherently risky. For example, the collapse of FTX was not caused by the riskiness of digital assets and related activities, but by run-of-the-mill fraud. Similarly, the collapse of Silicon Valley Bank and Signature Bank were not caused by digital asset-related customers. The reaction by the federal prudential regulators to fraud and mismanagement should not lead to de-risking of the digital asset industry. Taken together, the actions of the Fed, FDIC, and OCC do not appear to be in reaction to recent events or the result of a sudden desire to protect financial institutions from risky behavior, but instead suggest a coordinated strategy to de-bank the digital asset ecosystem in the United States.”

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