FDIC Drops Reputational Risk Criteria, Boosts Crypto Industry

The Federal Deposit Insurance Corporation (FDIC) has made a significant change to its guidelines, removing the reputational risk criteria used in evaluating bank supervision. This move is seen as a major victory for the crypto industry, as it was a key tool driving crypto debanking efforts. David Sacks, the Crypto Czar, hailed this as a big win for the industry, noting that the vague and subjective criteria had been used to justify the debanking of lawful crypto businesses through Operation Choke Point 2.0.

The FDIC's decision comes in response to proposed legislation that would mandate similar changes. Senator Tim Scott supports the FIRM Act, which aims to compel the Corporation to remove the reputational risk assessment. Although the bill is still in the committee stage and far from becoming law, the FDIC has pre-empted a lengthy legislative battle by aligning its guidelines with the pro-crypto mandate of the Trump administration.

President Trump has been vocal about his concerns regarding the FDIC's role in crypto debanking. Last December, he suggested abolishing the FDIC over its involvement in these efforts. However, this drastic step has proven unnecessary as the FDIC has now taken proactive measures to address the issue. As the term of President Biden's administration came to an end, FDIC members like Travis Hill began openly criticizing the Corporation's role in crypto debanking. Hill, now the Acting Chair, has enthusiastically released documents detailing the FDIC's involvement in Operation Choke Point 2.0, further signaling the agency's shift against crypto debanking.

This development could have substantial knock-on effects on the entire financial sector. While the FDIC's activities have primarily hampered the crypto industry, debanking efforts have also extended to other sectors. The FIRM Act has drawn criticism, with some commentators worrying that drastically looser rules could help bad actors and unfairly targeted firms. However, as far as the crypto industry is concerned, this is just one step in a broader trend. Since President Trump took office, the entire financial regulatory apparatus has taken on a sweeping pro-crypto attitude. The FIRM Act may now be totally unnecessary, and it looks like the FDIC is joining the industry-friendly wave.

In summary, the FDIC's removal of the reputational risk criteria in evaluating bank supervision is a significant development for the crypto industry. This move, driven by proposed legislation and the pro-crypto mandate of the Trump administration, signals a shift away from crypto debanking efforts. The FDIC's actions could have broader implications for the financial sector, although concerns remain about the potential for looser regulations to benefit bad actors. Overall, this development is seen as a positive step for the crypto industry, which has long been targeted by debanking efforts.