FDIC Accused of "Regulation by Exhaustion" in Crypto Crackdown

The Federal Deposit Insurance Corporation (FDIC) has been accused of forcing banks to stop providing services to crypto clients, a practice known as "regulation through exhaustion." This allegation comes amidst a series of revelations and investigations into the agency's actions during the Biden administration.

In 2024, Coinbase sued the FDIC, leading to the release of heavily redacted documents known as the "pause letters." These letters showed that the FDIC was pressuring financial institutions to pause all operations of companies using cryptocurrencies, effectively stripping them of their right to use banking services without a proper cause. This practice has raised concerns about the ongoing "Operation Choke Point 2.0" under the Democratic administration.

In February 2025, the FDIC released another 175 documents, which revealed that the agency had pressed more companies to debank their crypto clients. The banks' efforts to resist or ask additional questions were met with silence from the FDIC, which could last for months. In some cases, the FDIC sent directives to suspend or refrain from all crypto- or blockchain-related activity altogether.

Paul Grewal, the chief legal officer of Coinbase, has been vocal in the battle against the debanking of crypto clients. He compared the actions of the FDIC to "execution" and called them "regulation by exhaustion."

The FDIC's actions have been criticized by pro-crypto advocates, who argue that they stifle innovation and harm the crypto industry. The agency's release of documents coinciding with a Senate hearing on debanking has further fueled these concerns.

The Senate Banking Committee hearing, entitled "Investigating the Real Impacts of Debanking in America," put industry representatives front and center to discuss the implications and potential solutions to this growing issue with lawmakers and regulators. The hearing highlighted the breadth and depth of debanking and other banking practices affected by regulatory overreach.

During the hearing, industry experts testified about the adverse effects of debanking on their companies and the broader crypto industry. They emphasized how the debanking trend harmed innovation and stifled growth. The hearing also addressed the regulatory challenges faced by financial institutions and the need for clearer standards.

In response to these revelations, Senator Elizabeth Warren has shifted her stance on crypto regulation. She pledged to work with former President Donald Trump to tackle the issue of debanking in