“Debanking” has become a fashionable word in Washington lately. The term refers to a controversial practice where cryptographic companies and other companies have been cut off from banking services, which would have the pressure of federal regulators. Many in our industry have nicknamed this “Operation ChokePoint 2.0”, comparing it to a previous initiative of the Obama era which has discouraged banks from serving certain legal industries but at high risk. The question sparked a heated debate, with several surveys at the Congress examining if the regulators have misunderstood banks to refuse services to crypto companies and other companies.
I testify before the congress on this subject today because my company lived it with first hand, although it is a bank regulated by the federal government – and because the gambling is largely misunderstood. To respond to this threat to American values, we must first understand what happened.
Rather than regulators issuing clear and transparent rules on the banks that can be used, Debanking operates through a dark and democratically inexplicable process by which regulators warn banks not to serve certain types of customers not based on individual risk that They pose, but on hostility or through an industry. Banks, faced with the threat of an action in application, penalties or worse, have no choice but to comply. And individuals who respect the laws and companies are cut off from basic banking services, which can be devastating.
Here is what it looked like for us: in June 2023, we received an urgent call from our two and a half year old bank. Despite an established banking relationship – we were even in active discussions on the extent in new partnerships – the bank suddenly informed us that they closed our account in 30 days because it was not comfortable with The transactions of our Crypto clients, even if we have told them the funds in question, the payments of customers for childcare costs, and that they were fully documented within the framework of our rigorous compliance process. Our contact refused to provide an additional explanation or allow us to speak to the bank’s risk management team.
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The irony was austere: we are ourselves a bank with a federal charter, regulated and supervised by the OCC, subject to the same strict expectations of capital, liquidity and risk management than any other national bank. Not once during our partnership if our banking partner has ever raised a problem with our account. We were an excellent bank customer – well capitalized, well regulated and well managed. However, unexpectedly, our bank suddenly cut us without explanation or recourse. Although we were finally able to find banks arranged to associate with us, the impact of the bankruptcy of the banking system was devastating. This was extremely disruptive for our company and our customers, and contributed to the difficult decision that we made in 2023 to dismiss 20% of our workforce.
And we were not alone. The legitimate American companies of our industry found themselves rushing for basic banking services, devoting time and resources to bypass rather than innovation and growth, causing major disruption and even the conduct of certain cases.
The actions of regulators constituted a de facto ban on the bank of the cryptography industry, which made even more destructive by its apparently arbitrary application – no one knew why certain companies have kept access while others have been cut, creating a climate of constant uncertainty. To be clear, if the regulators had promulgated such a major political decision through the appropriate channels, such as the official reviews of opinions and comments, it would be one thing. But no rule has ever been proposed, publicly debated or subject to a legal examination. The congress has also not adopted legislation to authorize the suffocation of large parts of a federal banking system industry.
History shows us that without a permanent solution, it 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 banks to the united industries by regulators – promising to recycle its examiners. Quick advance until 2023, and these same debannage efforts, this time with a differently disadvantaged industry, reproduced. Without action, operation 3.0 is only a matter of time, and any industry could be the next target.
So how can we prevent it from happening? The surveillance of the congress, like the hearing that I will testify today, is crucial to discover the facts and keep the agencies responsible. The congress must also act to establish real guarantees: examine the legislation forcing banks to provide fair access to banking services within the limits of the existing law, obliges agencies to certify each year that they do not pressure the West , the FDIC and the federal reserve to report the misconduct by the examiner, oblige banks to provide written explanations for account layoffs and require clear appeal processes.
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Such protections would guarantee that no federal regulator can abuse its authority to quietly stifle individuals, companies and laws that respect the laws. Research measures than the new administration and the congress can take are to cancel the advice of joint banking regulators in January 2023 which served as a nail in the coffin for many cryptographic companies, and cancel the West Interpretation letter 1179, which imposed arbitrary requirements for arbitrary pre-protection This actually locked many banks of cryptographic activities.
These are not only procedural changes – they are essential to protect American innovation and ensure democratic responsibility. When regulators must own their decisions and defend them before the public and the courts, behind -the -scenes pressure campaigns and transparency and the rule of law prevail. The examination should be placed on the implicit threats of bureaucrats, not on legitimate companies by following the rules. Until these reforms are implemented, everyone is in danger.
