Federal regulators could be going too far in encouraging banks not to work with crypto companies, according to the top Republican on the Senate Banking Committee.
Sen. Pat Toomey of Pennsylvania sent a letter Tuesday to Acting Chairman of the Federal Deposit Insurance Corporation Martin Gruenberg, reporting that whistleblowers have come forward to say that the FDIC is “improperly taking action to deter banks from doing business with lawful cryptocurrency-related companies.”
Toomey said that affected parties have come forward to say that their banks have received letters from regional FDIC offices, at the direction of officials at the agencies Washington, D.C. headquarters, “requesting that they refrain from expanding relationships with crypto related companies, without providing any legal basis for doing so.”
The FDIC is one of the nation’s most important banking regulators, as it ensures retail customer deposits and supervises banks to establish their safety and soundness.
“The FDIC is acting consistent with longstanding legal authorities to ensure that banks engaging in crypto-related activities are doing so in a safe and sound way that protects consumers,” an agency spokesperson said in a statement.
“This may involve the FDIC requesting that an institution delay initiating or refrain from expanding crypto-related activities until supervisory feedback is taken into account,” the statement continued. “Given the risks readily apparent in the crypto-asset markets, these are necessary and appropriate actions to take.”
In April, the FDIC sent a letter directing all insured banks that do business or are considering doing business with crypto companies to notify the agency, and expressing concern that “that crypto assets and crypto-related activities are rapidly evolving, and risks of this area are not well understood given the limited experience with these new activities.”
The agency followed up with a notice to the public in July that warned that FDIC insurance does not protect consumers from the failure of non-banks like crypto companies, after it said some digital asset firms had misrepresented their products as being eligible for FDIC insurance.
In the wake of a broad decline in the prices of digital assets like bitcoin
crypto platforms including Voyager and Celsius have failed, leaving many customers with tens of thousands of dollars in losses.
Toomey’s letter to the FDIC chief suggests, however, that the FDIC may have overreached in its efforts to protect banks from failures of crypto-related companies.
He described one whistleblower report that FDIC headquarters officials urged regional offices to downgrade their classification of one bank’s loan to a crypto-related company.
“It is my understanding that it is highly atypical for FDIC headquarters personnel to be involved in reviewing an individual loan,” Toomey wrote. “If reports are true that there was nothing unusual about this loan (other than that it was to a crypto-related company) and that the loan amount was too small to affect the bank’s supervisory rating even if it had to write off the entire loan, this episode raises important questions.”