US Regulators Balance Crypto Risks, No Total Shutdown on Banking Ties
New documents highlight regulatory caution around crypto but dispel claims of forced debanking, shedding light on a complex supervisory approach.
By Tylt Editorial Team
The FDIC urged banks to pause crypto activities but did not order complete disengagement.
Coinbase-led litigation reveals a nuanced regulatory stance toward crypto services.
Internal memos highlight distinctions between direct crypto involvement and traditional banking for crypto clients.
In 2022 and 2023, a U.S. banking regulator, the Federal Deposit Insurance Corporation (FDIC), urged caution in banks’ dealings with cryptocurrency activities but stopped short of mandating a total severance of ties with crypto companies. Contrary to claims of an orchestrated "debanking" campaign against the crypto industry, recently released documents reveal a more nuanced supervisory approach by the FDIC.
The documents, part of a legal battle spearheaded by Coinbase, include supervisory letters advising banks to temporarily pause crypto ventures and ensure robust oversight. A federal judge ordered the FDIC to release more comprehensively redacted versions of these "pause letters" following claims by Coinbase and other crypto firms that U.S. regulators were systematically targeting the sector.
Coinbase's Chief Legal Officer, Paul Grewal, highlighted the importance of the disclosures, describing them as evidence of a coordinated regulatory effort to curb crypto activities. He called for congressional scrutiny to investigate the extent of such oversight. At the same time, the FDIC released an internal 2022 memo clarifying supervisory expectations. It differentiated between direct crypto activities, like custody of crypto assets, and traditional banking services offered to crypto clients, such as deposit accounts and loans.
The memo underscores the regulator’s focus on consumer protection and financial stability, citing the risks posed by crypto-related scams, bankruptcies, and volatility. The FDIC maintained its stance that banks should be cautious when directly engaging in crypto but did not advocate for a blanket cutoff of banking services to crypto companies.
The controversy unfolds as incoming policymakers are expected to shape a new crypto regulatory framework. The Biden administration is anticipated to adopt a more permissive approach to crypto oversight, signaling potential changes to supervisory practices. Until then, the FDIC’s carefully outlined directives and distinctions continue to offer rare insights into the confidential regulatory process and its evolving approach to the crypto sector.
