Heads of three House committees, Patrick McHenry (NC-10) of Financial Services, French Hill (AR-02) of Digital Assets, Financial Technology and Inclusion, and Bill Huizenga (MI-04) of Oversight and Investigations, wrote to the top executives of the Federal Reserve, the FDIC, and the Office of the Comptroller of the Currency. They want to know if the three financial agencies are working together to block banking access for digital asset companies and the crypto industry in general.
The crypto industry has sounded the alarm on the siege against the sector for some time now. However, the industry has found some level-headed politicians who are against regulatory overreach.
Congress Looking at Chokepoint 2.0 – Crypto Edition
The letter compared the current situation to what happened in 2012, during Obama’s administration. The three agencies tried to covertly coerce financial institutions to cease transactions with customers deemed risky. This targeted gun dealers, pawn shops, tobacco stores, and payday lenders. The operation only stopped after Congressional Intervention.
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.
(McHenry et al.)
“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.”
(McHenry et al.)
The observations above show the concerted effort of government agencies to de-bank crypto in the United States under the guise of risk mitigation.
Questions on Using Crypto as a Scapegoat
2022 was not a good year for the crypto Industry as a whole. Terra (Luna), which was once one of the biggest crypto projects, collapsed, which started a contagion that affected multiple institutions. FTX, once a major trading platform, filed for bankruptcy in November 2022. These failures led to billions of losses for both institutional and retail investors. Regulators used these examples as an excuse to label the whole industry as too risky.
But the letter from members of Congress nailed it when they said that the FTX bankruptcy was not caused by risk in investing in digital assets but by plain fraud. The representatives also said that crypto is not to blame for the closure of Silicon Valley Bank and Signature Bank.
The Lawmakers are Correct
Members of Congress are aptly called representatives. They represent the people who voted them into office. They make sure that the people are heard in the country’s political discourse. Having them investigate the regulatory overreach of the executive agencies is a breath of fresh air for the crypto industry.
Efforts to limit crypto players’ access to banks and financial products are stifling the growth of the sector. This is forcing some companies to set up shops in friendlier jurisdictions. Capital that should have been invested in the country is now being welcomed abroad. Retail consumers who are supposed to be protected are instead being excluded. Members of Congress are rightfully fighting for the rights of U.S. companies and investors.
The video below shows Congress Majority Whip questioning the SEC Chair. The SEC is not included in the letter, but Rep. Tom Emmer’s point shows how the government is treating the crypto industry.
Source: McHenry, Patrick et al. Letter to Jerome Powell et al. April 2023.
Featured image from Unpslash
