“Debanking” has become a fashion word in Washington lately. The term refers to a controversial practice in which cryptographic companies and other companies have been separated from banking services, supposedly due to the pressure of federal regulators. Many in our industry have called this “Operation Chokepoint 2.0”, comparing it with an previous initiative of the Obama era that discouraged banks to serve certain legal but high risk industries. The issue has caused a heated debate, with multiple Congress investigations that examine whether regulators incorrectly pressed banks to deny services to cryptographic companies and other companies.
I am testifying before Congress in this regard because my company experienced it first hand, despite being a bank regulated by the federal government ourselves, and because the debate is widely misunderstood. To address this threat to US values, we must first understand what happened.
Instead that regulators who emit clear and transparent rules about who banks can serve, the debate operates through a gloomy and democratically inexplicable process by which regulators warn the banks against which certain types of clients serve They are not based on the individual risk they pose, but on hostility or bias towards a complete industry. Banks, which face the threat of application action, sanctions or worse, have no choice but to meet. And the respectful persons and companies of the law are separated from basic banking services, which can be devastating.
This is what it seemed for us: in June 2023, we received an urgent call from our bench of two and a half years. Despite an established banking relationship, we were even in active discussions about the expansion of new associations, the bank infirmly informed us that they were closing our account in 30 days because it did not feel comfortable with the transactions of our cryptographic clients, despite the fact that We told them the funds in question were the client payments for custody rates, and that these were completely documented as part of our rigorous compliance process. Our contact refused to provide any additional explanation or allow us to speak with the bank’s risk management team.
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The irony was marked: we ourselves are a bank chartered by the Federal Government, regulated and supervised by the Occ, subject to the same strict expectations of capital, liquidity and risk management as any other national bank. Not once in the course of our association had raised our banking partner with our account. We were a great banking client, well capitalized, well regulated and well managed. However, out of nowhere, our bank interrupted us abruptly without explanation or resource. While we could finally find the banks willing to associate with us, the impact of being almost outside the banking system was devastating. It was extremely harmful to our business and our clients, and contributed to the difficult decision we made in 2023 to fire 20% of our workforce.
And we weren’t alone. American legitimate companies throughout our industry were fighting for basic banking services, spending time and resources on solutions instead of innovation and growth, causing large interruptions and even expelling some out of business.
The regulators’ actions were equivalent to a de facto prohibition of the cryptographic industry bank, which became even more destructive for their apparently arbitrary application: nobody knew why some companies retained access while others were cut, creating a climate of constant uncertainty. To be clear, if the regulators had promulgated such an important policy decision through adequate channels, such as formal regulations for warning and comfort, that would be one thing. But a rule was never proposed, he discussed publicly or underwent legal scrutiny. The Congress also did not approve legislation to authorize the drowning of large parts of a federal banking system industry.
History shows us that without a permanent solution, this will happen again. A little over seven years ago, the FDIC apologized for the first iteration of “Operation Choke Point”, a concerted campaign to cut the bank to the disadvantaged industries by regulators, promising to return to training their examiners. Let’s quickly advance until 2023, and those same deposit efforts, this time with a politically disadvantaged industry, occurred again. Without action, operation 3.0 is just a matter of time, and any industry could be the next objective.
So how can we prevent this from happening again? The supervision of the Congress, as the audience that I will testify today, is crucial to discover the facts and hold the agencies. The Congress must also act to establish real safeguards: consider the legislation that requires that banks provide fair access to bank services within the limits of the existing law, require that agencies certify annually that they are not pressing banks to discriminate against Legal companies, establish the inspector General of Silvestres de Silbato in the Occ, the FIC and the Federal Reserve to inform the misunderstanding of the examiner, require that the banks provide written explanations for the terminations of accounts and require clear appeals processes.
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These protections would ensure that no federal regulator can abuse their authority to silently drowning people, companies and industries respectful of the law again. The most immediate steps that the new administration and congress can take are to terminate the orientation of the regulators of the January 2023 banking that served as the nail in the coffin for many cryptographic businesses, and terminate the interpretive letter of Occ 1179, that imposed arbitrary requirements prior to the clear that effectively blocked many banks of cryptographic activities.
These are not only procedure changes: they are essential to protect US innovation and guarantee democratic responsibility. When regulators have to possess their decisions and defend them before the public and the courts, the transancing pressure campaigns end and prevail transparency and the rule of law. The scrutiny must be in implicit threats of the bureaucrats, not in legitimate businesses that follow the rules. Until these reforms are implemented, everyone is at risk.
