No More Debanking? Fed Chair Says US Banks ‘Perfectly Able’ to Serve Crypto Customers

The Federal Reserve signaled Wednesday that servicing the cryptosphere shouldn’t be off-limits for U.S. banks, whether that involves catering to customers or pioneering new services.

Fed Chair Jerome Powell said during a Wednesday press conference that the U.S. central bank is “not against innovation,” and that “banks are perfectly able to serve crypto customers, as long as they understand and can manage the risks.”

“A good number of our banks that we regulate and supervise do that,” Powell continued. “The threshold has been a little higher for banks engaging in crypto activities.”

Powell’s remarks came days after the House of Representatives officially began investigating a plot dubbed “Operation Choke Point 2.0.” His comments were made in response to a reporter asking whether speculation in an unregulated asset class could hurt American households.

The term for the purported plot, which borrows its name from an Obama-era initiative, was popularized by Nic Carter, a partner at Castle Island Ventures. In a post on X, Carter described Powell’s comments as an “immense shift,” essentially bringing an end to said plot.

Coinbase’s Chief Legal Officer Paul Grewal likewise told Decrypt in an email that Powell’s comments were refreshing.

“What a change from the last four years,” he said. “What I hear Jay Powell saying is: Banks are now free to manage any risks from crypto, just like they manage any risks from any other industry.”

The Republican-led inquiry into “debanking” under the Biden administration seeks to assess whether individuals and entities were cut off from the financial system due to their involvement in certain industries. Powell said that crypto customers may come with nuanced risk, but that doesn’t mean they should be turned away by default.

“We certainly don’t want to take actions that would cause banks to terminate customers who are perfectly legal, just because of excess risk aversion [that’s] maybe related to regulation,” he said.

Still, Powell said that banks engaging with crypto directly, potentially as a way to offer customers new services, should exercise caution because the asset class is still somewhat new.

“If you’re making a choice to conduct [crypto] activity inside a bank, which is inside the federal safety net with deposit insurance, then you want to be sure that it’s safe and sound,” he said.

In September, former SEC Chair Gary Gensler denied knowledge of Operation Choke Point 2.0, testifying before Congress that he had “never heard that term.” Not long after Gensler left the agency last week, the SEC rescinded Staff Accounting Bulletin (SAB) No. 121.

The controversial crypto accounting rule, introduced in March 2022, required banks to treat digital assets as a liability on their balance sheets, which was ultimately a deterrent.

This month, documents obtained by crypto exchange Coinbase via the Freedom of Information Act showed the Federal Deposit Insurance Corporation or FDIC also deterred banks from offering crypto services, across at least 23 instances dating back to March 2022. 

One letter detailed a “Bank Digital Deposit” program that the FDIC took issue with because it operated on a public blockchain. Another letter asked a bank to “pause all crypto asset-related activity” after trying to establish a service allowing customers to buy and sell Bitcoin.

While the House investigation is still in its early phases, the prospect of a government conspiracy has already started receiving mainstream attention. 

In November, Marc Andreessen, co-founder of venture capital firm Andreessen Horowitz, claimed on the popular “The Joe Rogan Experience” podcast to personally know 30 tech founders who were debanked.

Edited by Andrew Hayward