Evidence of the FDIC discouraging crypto banking services has emerged. Cryptocurrency exchange Coinbase’s chief legal officer considers the action a “shameful example of a regulator denying law-abiding American companies” the opportunity to provide crypto-related banking access to its citizenry.
A recent Coinbase expose revealed at least 23 documented cases showing the Federal Deposit Insurance Corporation (FDIC) asking banks to “pause” or “refrain from providing” or “not proceed” with offering crypto-related banking activities. According to the exchange’s Freedom of Information Act (FOIA) request, the Coinbase expose gives evidence of FDIC discouraging banking services offered by banks due to concerns about financial stability, consumer protection, and security of the said institutions.
Obscure Information in the Name of Protection
Coinbase’s Chief Legal Officer Paul Grewal states that his company unearthed over 23 FDIC letters discouraging banks from engaging in crypto-related banking. Grewal stated his company intended to examine the FDIC’s influence on decisions by US-based banking institutions as far as crypto services were involved and the watchdog’s role in Operation Checkpoint 2.0. Underscoring the fact that the US public had every right to transparency instead of a regulatory body obscuring information in the guise of consumer protection, Grewal called the letters a “shameful example” of a government agency using a “regulatory curtain” to curtail crucial information from reaching the public.
In one of the FDIC letters seen by Coinbase dated as far back as March 2022, the regulator tells a bank to “pause all crypto asset-related activity” claiming it had sufficient evidence showing potential safety risks associated with crypto banking services. In yet another document dated September 2022 showing FDIC discouraging crypto banking services, the regulator asks a bank to delay allowing its customers to access crypto services since the watchdog had evaluated the potential of digital assets on safety, stability and consumer protection and found them wanting.
Claims of Potential Safety and Risk Soundness
The Coinbase expose summarizes at least 23 FDIC letters showing different instances where the regulator repeatedly questions the banks on their risk assessment procedures, asking them to hold on offering crypto-related services until their review is completed. In one of the letters contained in Coinbase’s filing, the regulator states it had called a meeting with a particular bank to analyze its crypto-related services. In yet another instance of a letter showing FDIC discouraging banking services, the regulator’s Assistant regional director, Eric T Guyot, claims to have evidence of potential safety and risk soundness surrounding a company’s proposed crypto product.
The March 11, 2022 letter is followed by a similar letter written on March 25, 20222, by Acting Regional Director Jessica Keamingk, asking the bank’s board to halt its crypto-asset program on safety and soundness before requesting further documentation. While the expose shows that the bank provided all the required documentation in the aftermath of the said meeting, the FDIC reportedly demanded additional information and asked the bank to cease expanding its services to additional customers “until such review is completed.”
No Love Lost
There’s no love lost between crypto advocates and the FDIC, with the crypto community being irked by the expose showing the FDIC discouraging crypto banking. Niklas Kunkel of Chronicle Labs has criticized the regulator’s approach, claiming it was contradictory to the claims of Deputy Treasury Secretary Wally Adeyemo. Kunkel found it absurd for government officials to know what the government policy said but ended up acting in the complete opposite way.
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He found the actions of FDIC officials “shameful and in direct contrast to a statement by Adeyemo in August” regarding the ongoing Operation Checkpoint 2.0. In the same vein, BitGo CEO Mike Belshe has called out the actions of FDIC discouraging crypto banking, claiming he knew of a particular case where the watchdog deliberately stopped a bank from entertaining the nascent crypto industry.
Conclusion
The revelations contained in the exposed FDIC letters continue to ignite discussions on the government’s role within the emerging cryptocurrency space. Many experts continue to call for the government to provide a clear and more supportive environment that fosters innovation instead of one that will stifle it.
In the meantime, Coinbase’s Grewal has emphasized his company’s commitment to embrace regulatory transparency, saying the exchange will continue filing Freedom of Information Act (FOIA) requests to uncover the regulatory direction on crypto the crypto space.