The Federal Deposit Insurance Corporation (FDIC) is poised to review a pivotal regulation that could significantly reshape how traditional banks interact with the cryptocurrency industry. This move comes amidst growing concerns over "de-banking" practices, where financial institutions are reportedly pressured to sever ties with crypto-related businesses.
Scrutinizing "Reputational Risk" in Banking
At the heart of the upcoming FDIC board meeting is a proposal to prohibit regulators from using "reputational risk" as a justification for limiting banks' engagement with certain activities. Interim FDIC Chairman Travis Hill has been a vocal critic of this practice, arguing that it has been unfairly applied to deter banks from offering services to crypto firms, such as facilitating fund transfers to exchanges. This proposed rule aims to clarify regulatory boundaries and ensure a more transparent environment for financial institutions considering partnerships within the digital asset space.
A Response to Past "De-Banking" Allegations
This regulatory reevaluation is deeply rooted in widespread allegations from the crypto industry, often dubbed "Operation Chokepoint 2.0," where firms claimed they were systematically denied access to essential U.S. banking services. Court documents have even revealed instances in 2022 where the FDIC reportedly instructed some institutions to "cease all crypto-related activity." The issue gained significant political traction, with former President Donald Trump issuing an executive order aimed at preventing "politicized or illegal de-banking" linked to regulators' use of reputational risk. Following Trump's election and Hill's appointment, the FDIC has signaled a clear intent to re-evaluate its supervisory approach to all crypto-related activities, suggesting a shift towards clearer guidelines and potentially more integrated banking for the digital asset sector.
