Fed Targets Crypto Debanking
The Federal Reserve proposed eliminating the 'reputation risk' factor in bank oversight of crypto businesses. The rule would prevent supervisors from pressuring banks to cut off crypto clients based on perceived reputation issues, aimed at improving banking access for digital asset firms. If implemented, the proposal could bring greater stability to the crypto sector's relationship with traditional finance.
- This move is seen by critics as a way to end what they call "Operation Choke Point 2.0," an alleged informal but coordinated effort by U.S. regulators to pressure banks into cutting ties with cryptocurrency firms. - The proposal to eliminate "reputation risk" follows similar actions by other U.S. banking regulators, including the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC). - Federal Reserve Vice Chair for Supervision Michelle W. Bowman stated that the "vague and inherently subjective standard" of reputation risk has led to discrimination against lawful businesses and diverted focus from core financial risks. - The issue of "debanking" gained prominence following the collapse of several crypto-friendly banks in 2023, including Silvergate Bank and Signature Bank, which significantly reduced the crypto industry's access to traditional banking services. - Senator Cynthia Lummis, a vocal supporter of the crypto industry, has been a prominent critic of using reputation risk as a supervisory tool, arguing that it's not the Federal Reserve's role to be the "judge and jury" for banking digital asset companies. - In August 2023, the Federal Reserve established a "Novel Activities Supervision Program" to oversee activities like crypto-assets and partnerships between banks and fintech companies. - The proposal is currently in a 60-day public comment period, during which industry stakeholders and the public can provide feedback before the rule is finalized.
