Why Debanking is the New Bureaucratic Buzzkill! 😱

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Ah, “debanking” — a term that has recently waltzed its way into the hallowed halls of Washington, D.C., like an uninvited guest at a garden party. This delightful little buzzword refers to a rather controversial practice where crypto companies and other businesses find themselves cut off from banking services, all thanks to the not-so-gentle nudging of our federal regulators. It’s like being told you can’t play in the sandbox because the grown-ups have decided you’re too messy. 🎩

Many in our industry have taken to calling this charming escapade “Operation Chokepoint 2.0,” a name that rolls off the tongue like a fine vintage. It’s reminiscent of a previous initiative from the Obama era that discouraged banks from serving certain legal but high-risk industries. The whole affair has sparked a debate hotter than a summer’s day in the Sahara, with congressional investigations popping up like daisies in spring, all trying to determine whether regulators have been playing a game of “who can pressure the banks the hardest.”

Today, I find myself testifying before Congress about this very issue, as my company has had the pleasure of experiencing it firsthand. Yes, despite being a federally-regulated bank ourselves, we’ve been caught in this bureaucratic web. It’s a bit like being a cat in a room full of rocking chairs — you’re bound to get squished if you’re not careful. 🐱

Now, instead of regulators issuing clear and transparent rules on who banks can serve, we have this shadowy process that operates with all the clarity of a foggy London morning. Regulators warn banks against serving certain customers, not based on individual risk, mind you, but rather on a delightful cocktail of hostility and bias towards entire industries. Banks, fearing the wrath of enforcement actions or worse, are left with no choice but to comply. And thus, law-abiding individuals and businesses find themselves cut off from basic banking services, which can be as devastating as a soggy biscuit at tea time.

The irony, dear reader, is as thick as a London fog: we are a federally chartered bank, regulated and supervised by the OCC, and yet, out of the blue, our banking partner decided to cut us off with all the grace of a bull in a china shop. Not once had they raised an issue with our account. We were the model customers — well-capitalized, well-regulated, and well-run. Yet, one fine day, we were left floundering like a fish out of water. While we eventually found other banks willing to partner with us, the impact of being nearly shut out of the banking system was as disruptive as a surprise visit from Aunt Agatha. 🐟

And we were not alone in this merry dance of debanking. Legitimate American businesses across our industry found themselves scrambling for basic banking services, spending more time on workarounds than on innovation and growth. It was a bit like trying to bake a soufflé in a kitchen with no eggs — utterly futile and rather messy.

The regulators’ actions amounted to a de facto ban on banking the crypto industry, enforced with all the randomness of a game of roulette. No one knew why some firms retained access while others were left out in the cold, creating a climate of uncertainty that would make even the most seasoned gambler nervous. If only the regulators had enacted such a major policy decision through proper channels, like formal notice-and-comment rulemaking, we might have had a semblance of order. But alas, no such luck! No rule was ever proposed, publicly debated, or subjected to legal scrutiny. It’s as if they were playing a game of Monopoly and decided to change the rules halfway through. 🎲

History, as we know, has a way of repeating itself. Just over seven years ago, the FDIC apologized for the first iteration of “Operation Choke Point,” promising to retrain its examiners. Fast forward to 2023, and here we are again, with the same debanking efforts, this time targeting a different politically disfavored industry. Without action, we can only expect “Operation 3.0” to rear its ugly head, and any industry could find itself in the crosshairs. 🎯

So, how do we prevent this bureaucratic farce from happening again? Congressional oversight, like the hearing I will testify at today, is crucial to uncover the facts and hold the agencies accountable. Congress must act to establish real safeguards: consider legislation requiring banks to provide fair access to banking services, require agencies to annually certify that they are not pressuring banks to discriminate against lawful businesses, and establish Inspector General whistleblower hotlines at the OCC, FDIC, and Federal Reserve to report examiner misconduct. It’s a bit like putting a bell on the cat — necessary, but not without its challenges.

Such protections would ensure that no federal regulator can abuse its authority to quietly choke off law-abiding individuals, companies, and industries again. More immediate steps that the new Administration and Congress can take are to rescind the January 2023 joint banking regulators’ guidance that served as the nail in the coffin for many crypto businesses, and rescind the OCC’s interpretive letter 1179, which imposed arbitrary pre-clearance requirements that effectively locked many banks out of crypto activities.

These aren’t just procedural changes — they are essential to protect American innovation and ensure democratic accountability. When regulators have to own their decisions and defend them before the public and the courts, the backroom pressure campaigns end, and transparency and rule of law prevail. The scrutiny should be on implied threats from bureaucrats, not on legitimate businesses following the rules. Until these reforms are implemented, everyone is at risk of being caught in the bureaucratic crossfire. 🏦

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

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2025-02-05 21:40