FDIC's Crypto Banking Resistance: A 790-Page Reveal

The Federal Deposit Insurance Corporation (FDIC) has released a trove of 790 pages of documents, shedding light on the agency's resistance to banks engaging in crypto-related activities. The documents, released ahead of a Senate Banking Committee hearing on alleged "debanking" by banks, provide insights into the FDIC's supervisory approach to crypto banking and its impact on the broader crypto industry.



Acting Chairman Travis Hill acknowledged the FDIC's past approach, stating, "I have been critical in the past of the FDIC’s approach to crypto assets and blockchain. Upon becoming Acting Chairman, I directed staff to conduct a comprehensive review of all supervisory communications with banks that sought to offer crypto-related products or services." This review led to the release of the documents, demonstrating a commitment to enhancing transparency and fulfilling the spirit of the Freedom of Information Act (FOIA) request.

The documents reveal that the FDIC sent 25 "pause" letters to 24 institutions interested in pursuing activities involving crypto or other digital assets. These letters effectively put a halt to the banks' plans, as Hill noted, "Both individually and collectively, these and other actions sent the message to banks that it would be extraordinarily difficult—if not impossible—to move forward." This resistance and delays in responses created a chilling effect, discouraging many banks from engaging with the crypto industry.

The FDIC's stance had significant consequences for the broader crypto industry. A survey by the Alternative Investment Management Association (AIMA) found that approximately 75% of crypto-focused hedge funds faced obstacles with their banking services, compared to none in other alternative investment sectors. This disparity in banking accessibility raised concerns about systematic exclusion and discrimination against the crypto industry.

Paul Grewal, Coinbase's Chief Legal Officer, questioned the systematic exclusion of crypto entities from banking services, while Matt Hougan, Chief Investment Officer at Bitwise, described the situation as a form of gaslighting that made some in the industry question the legitimacy of their experiences.



Industry stakeholders are hopeful for a shift with President Donald Trump's more crypto-friendly incoming administration. David Sacks, the newly appointed AI and Crypto Czar, stressed the need to investigate these restrictive banking practices while acknowledging the damage they have inflicted on crypto-related businesses.

In conclusion, the FDIC's "pause" letters and other supervisory communications played a crucial role in shaping the regulatory environment for crypto banking, effectively discouraging banks from engaging in crypto-related activities. This chilling effect had a notable impact on the growth and development of the crypto sector, as evidenced by the banking challenges faced by crypto funds and the concerns raised by industry executives. The potential shift with a new administration suggests that the regulatory environment for crypto banking may change in the future.