Travis Hill, interim chairman of the Federal Deposit Insurance Corporation (FDIC), acknowledged the agency’s role in “debanking” crypto companies during a speech in St. Louis on January 10.
Hill pointed to reports of crypto-related companies losing access to banking services without explanation, and juxtaposed them with historically excluded groups, such as politically unfavorable industries and individuals associated with controversial religious or political affiliations.
He asserted that such efforts are “unacceptable” and inconsistent with the FDIC’s mission to reduce the number of unbanked Americans. Heuvel added:
“A long-standing goal of the FDIC is to reduce the number of unbanked people. Attempts to dispossess law-abiding customers are unacceptable.”
Hill’s comments bring new clarity to what critics have dubbed “Operation Chokepoint 2.0,” an alleged attempt by President Joe Biden’s administration to stunt the growth of the U.S. crypto industry.
He further urged regulators to put an end to debanking practices and emphasized that the FDIC must ensure that no staff members engage in tactics that pressure banks to drop law-abiding customers.
Nic Carter, co-founder of Coin Metrics, said Hill’s admission is a “huge sea change at the agency.” He added that he expects things to “change in a huge way” on January 20, when President-elect Donald Trump takes office.
No more break letters
The interim chairman also criticized the FDIC’s current approach to crypto, which he described as overly cautious and stifling innovation.
He highlighted revelations that the FDIC has sent “pause” letters to more than two dozen banks, ordering them to halt crypto-related activities. These actions, he said, have contributed to the perception that the FDIC is hostile to blockchain and distributed ledger technologies.
Recently, Coinbase Chief Legal Officer Paul Grewal shared some pause letters: revealing that the FDIC has asked banks to stop or avoid offering crypto-related services and simple products such as buying Bitcoin (BTC).
Hill called for a reset of the agency’s digital assets strategy and advocated for clear and transparent guidance on legally permitted activities and how to conduct them safely.
He noted:
“A better approach would have been to outline expectations up front, with public feedback, rather than engaging in piecemeal enforcement actions.”
Hill also discussed the broader implications of regulatory oversight of crypto-related activities such as staking and lending. He acknowledged that the FDIC’s cautious stance has hampered innovation and urged regulators to grant timely approvals for activities that meet safety and soundness standards.
The interim chairman linked the debanking issue to broader compliance challenges under the Bank Secrecy Act (BSA). He argued that banks often choose to close accounts to avoid potential fines for inadequate compliance, further exacerbating the debanking problem.
Hill called for a re-evaluation of the BSA regime to ensure its implementation does not inadvertently harm law-abiding customers.
His comments come ahead of the FDIC’s leadership transition, which begins Jan. 20. Hill emphasized the need for a balanced approach to banking supervision, especially with regard to innovation and technology adoption.
Hill also suggested that the FDIC modernize its policies to keep pace with the evolving financial landscape while upholding the principles of safety and soundness.
The interim chairman expressed optimism that the FDIC could achieve a better balance in the coming months. One way to do this is by revitalizing the agency’s innovation lab, FDiTech, and promoting greater collaboration between regulators and the fintech industry.