OCC Continues to Unravel Crypto Debanking

Trump said at the Digital Asset Summit Thursday that Operation Choke Point 2.0, the alleged federal conspiracy to debank crypto companies, ended in January. But that’s not the full story. 

Crypto companies were debanked for several reasons. Some were the result of coordination between the three federal agencies in charge of telling banks how to act in order to reduce risk to the federal banking system. These agencies — the Federal Reserve Board (FRB), Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) — each have their own leadership and, technically, policies.

Crypto’s debanking crisis can’t be fixed just by putting a new president in office. Each of those federal agencies’ policies have to be changed, and the people in charge of each have to be replaced (or, at the very least, change their perspective).

Though there’s still more work to do, one of those federal agencies took another big step forward today.

Major Bank Regulator Removes Key Rationale for Blacklisting Crypto Industry

The OCC said it would stop evaluating banks based on the “reputational risk” of their clients, which many crypto firms saw as a target on their backs.

The Office of the Comptroller of the Currency (OCC) said in a press release late Thursday that it will no longer examine banks for “reputational risk.” This term is used to describe what the banking regulator saw as a past practice of judging banks based on the public perception of the companies and industries they service. Many crypto firms felt that the regulator was discriminating against them because of the controversial nature of their industry. Today’s guidance would suggest that this is no longer the case.

“The OCC’s examination process has always been rooted in ensuring appropriate risk management processes for bank activities, not casting judgment on how a particular activity may fare with public opinion,” said Acting Comptroller of the Currency Rodney E. Hood. 

A Key Step Towards Rebanking Crypto

The OCC’s Thursday update builds on guidance published March 7, the same day as the White House Crypto Summit, which said that banks could use their own risk mitigation tools to assess how they service the industry. Previously the OCC required banks under its supervision to get pre-approval from the regulator to engage in custodying crypto or processing payments using stablecoins or distributed ledgers. At the summit itself, President Trump said that he was “ending Operation Choke Point 2.0.” 

Read More: Trump Says He Is Ending Operation Choke Point 2.0

After FTX declared bankruptcy in November 2022, regulators began telling banks to beware of crypto companies, warning them in a January 2023 joint statement that the industry posed a heightened risk of fraud, scams, volatility, contagion and cyber attacks. 

The Federal Reserve Board (FRB), Federal Deposit Insurance Corporation (FDIC) and OCC collectively supervise banks, a process which involves regional supervisors assessing the inner workings of banks’ risk models and providing guidance to reduce instability in the American banking system. Though the supervisors do not tell banks precisely how to operate their business, they can insist on corrective action if they feel that a bank’s practices are so harmful that they could create a harmful domino effect throughout the industry. “Reputation risk,” is one of the categories of risk the OCC used in its supervision of financial institutions. 

Read More: Regulators are Limiting Banks Serving Crypto Clients. Does That Violate the Law?

Congress Also Gets Involved

This guidance also comes after Congress has taken its own initiative to investigate whether discriminatory banking practices took place under the Biden Administration. At a pair of hearings in the Senate Banking Committee and House Financial Services Subcommittee on Oversight and Investigations last month, executives from crypto bank Anchorage Digital, Coinbase, mining firm MARA Holdings, and digital payments company WSPN recounted for members of Congress their own experience struggling to access banking services just for working in crypto. “We were a highly-regulated, well-capitalized, well-run business — in many ways the ideal bank client,” Anchorage Digital CEO Nathan McCauley told members of the Senate Banking Committee at the time. Later, their bank told them they were “not comfortable with our crypto clients’ transactions.” 

Read More: Ahead of Debanking Hearings, Industry Is Divided on Political Strategy

“By removing ‘reputational risk’ as a tool to evaluate safety and soundness, the OCC is taking a major step forward in fair access to banking,” said Kevin Wysocki, Head of Policy at Anchorage Digital in an email. “It’s a step toward a banking system where banks are judged more on transparent risk areas, instead of subjective ones. The likely end result: less debanking and better access to banking services for crypto firms.” 

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