In recent months, the term “debanking” has emerged as a significant topic of discussion in Washington, particularly among those involved in cryptocurrency and related industries. Defined as the practice of denying banking services to specific companies, particularly in the crypto space, debanking has been met with significant backlash amid accusations that federal regulators have pressured banks to sever ties with these businesses. This situation has drawn parallels to a previous initiative known as “Operation Chokepoint,” where banks were discouraged from serving certain high-risk but legal industries.
As someone who has experienced debanking firsthand, it is crucial to shed light on this misunderstood practice. Today, I am testifying before Congress to reveal the impactful consequences of this phenomenon for my company and countless others. Understanding what has transpired is imperative to protect American values and ensure fair and equitable access to banking services.
Debanking is enforced through a non-transparent, shadowy process that lacks democratic accountability. Instead of clear and concise regulations guiding which customers banks may serve, banks are often left to navigate threats of enforcement actions, penalties, or reputational damage. As a result, they may cut off services to businesses viewed unfavorably by regulators, resulting in devastating consequences for law-abiding companies and individuals.
Our experience illustrates this disturbing trend. In June 2023, after establishing a trusting relationship with our bank for over two years, we were abruptly informed that our account would be closed. This decision was based on the bank’s discomfort with transactions related to our crypto clients, despite our assurance that all funds were fully compliant and properly documented within our oversight processes. We were met with a refusal to provide clarification or allow communication with the bank’s risk management team.
Ironically, we are a federally chartered bank, regulated by the Office of the Comptroller of the Currency (OCC) and subject to the same rigorous standards as any national bank. Yet, without any forewarning or reason, we found ourselves nearly shut out of the banking system. While we ultimately secured partnerships with other banks, the disruption and uncertainty of being denied basic banking services had detrimental effects on our business and led to the difficult decision to reduce our workforce by 20%.
This experience is not unique. Numerous legitimate businesses within the cryptocurrency sector have faced similar battles, dedicating valuable resources to devising workarounds rather than focusing on innovation and growth. This has caused massive disruptions and, in some instances, has led to companies going out of business.
The arbitrary nature of regulators’ actions swiftly turned into a de facto ban on banking services for the crypto industry. Without clear guidance, a climate of uncertainty emerged, leaving businesses unsure of why some had their accounts untouched while others were abruptly cut off. If regulators had enacted a new policy through appropriate measures, such as rulemaking processes that encourage public debate and legal scrutiny, it would have been more justifiable. However, no such actions were taken, and no legislation was passed to authorize this restrictive approach.
Historical context reveals that without proper intervention, these patterns are likely to repeat themselves. Just a few years ago, the FDIC acknowledged the missteps of the original “Operation Choke Point” and vowed to prevent similar actions in the future. Fast forward to 2023, and we find ourselves again grappling with a similar situation, but this time it is the crypto industry under fire.
To thwart ongoing and future episodes of debanking, we must advocate for comprehensive Congressional oversight. Today’s hearing is a crucial step toward uncovering the facts and ensuring that those agencies are held accountable for their actions. Key proposals include legislation requiring banks to provide fair access to banking services, annual certifications that agencies are not pressuring banks to discriminate, and establishment of whistleblower hotlines to report misconduct at regulatory agencies.
Additionally, immediate actions should involve rescinding recent guidance that unwittingly furthered the debanking of crypto businesses and reexamining the OCC’s practices to avoid instituting unnecessary barriers to banking participation in this sector.
Implementing such measures is essential not only for the protection of American innovation but also for reinforcing democratic accountability. When regulators are called to justify their decisions openly, transparency replaces ambiguity, and the focus shifts away from legitimate businesses toward safeguarding against undue bureaucratic pressures. Until reforms are enacted, every industry remains at risk.
