HFS Staff Document Crypto Debanking and Urge Legislative Reform

In a House Committee on Financial Services Final Report, staff "identified a pattern of Biden Administration prudential regulators abusing their regulatory, supervisory, and enforcement authorities to push entities involved in the digital asset ecosystem out of the U.S. financial system."  

The staff found that the Biden Administration utilized a strategy (coined "Operation Choke Point 2.0") to systematically deprive digital asset businesses of access to financial services. The staff claimed that regulators, including the Federal Reserve and the FDIC, abused their supervisory authority by issuing informal guidance and "pause" letters that effectively pressured financial institutions to drop digital asset clients. The staff asserted that this lack of regulatory clarity and the use of "reputational risk" assessments created a chilling effect across the banking industry. 

According to the study, the SEC contributed to this environment by refusing to establish clear rules and instead relied on an aggressive enforcement strategy. The staff said that this approach stifled blockchain innovation in the United States and forced many entrepreneurs to move their operations and jobs to foreign jurisdictions. The staff highlighted that legitimate businesses were debanked without explanation, impacting their ability to pay basic operating expenses like payroll and rent. 

The staff detailed how the Trump Administration has begun to reverse these policies through executive orders and the appointment of new regulators who are rescinding restrictive guidance. The staff noted efforts to remove "reputational risk" from examination manuals and the establishment of a working group dedicated to creating a functional regulatory framework. The authors argued that these executive actions are necessary to prevent future administrations from targeting lawful industries based on political preferences.

The staff recommended that Congress enact specific legislation to provide long-term certainty for the digital asset market. They urged the passage of bills that would define digital commodities, prohibit the use of subjective risk metrics in bank supervision, and reform the internal rating systems used by examiners. They concluded that formal rulemaking and statutory clarity are essential to protecting consumers and maintaining American competitiveness.