Since President Donald Trump was elected in November and took office in January, one of his top priorities has been to undo the debanking of the digital asset space that purportedly took place in the United States under the administration of former President Joe Biden.
Last week, this effort picked up pace with a proposed Senate bill, a seeming policy reversal from one of the country’s top banking sector watchdogs, and a further commitment from Trump himself to end the non-official practice.
Digital asset debanking
In general, ‘debanking’ refers to the process of financial institutions restricting or terminating banking services for certain businesses due to—in the case of digital assets—regulatory concerns, compliance risks, or perceived instability.
During the Biden administration, U.S. financial regulators—such as the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Securities and Exchange Commission (SEC)—intensified scrutiny of digital asset firms and the industry as a whole.
In January 2023, the Federal Reserve, FDIC, and OCC issued a joint statement warning banks about the risks of dealing with digital asset-related businesses. It stated that “issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network, or similar system is highly likely to be inconsistent with safe and sound banking practices.”
The Federal Reserve—the central bank of the U.S.—later doubled down by publishing an order denying Custodia Bank’s application for membership, citing concerns about the risks of digital assets.
This appeared to confirm suspicions that those dealing in digital asset were being squeezed out of the banking space.
Meanwhile, under its former chairman, Gary Gensler, the SEC made its feelings about the digital asset space abundantly clear. Gensler frequently described it as being rife with “fraud and bad actors.” Thus, the agency embarked on what was described as a “regulation by enforcement” approach to the space – essentially a no-nonsense crackdown on the crypto wild west.
These various regulatory measures were accompanied by—or, according to some, caused—the 2023 collapse of several digital asset-friendly banks, namely Silvergate, Signature Bank (NASDAQ: SBNY), and Silicon Valley Bank. An unfortunate series of events that further raised fears of a top-down attempt to cut digital asset businesses off from the U.S. banking system.
In February 2023, digital currency advocate and venture capitalist Nic Carter coined the term “Operation Choke Point 2.0” to describe this seemingly coordinated attempt from several federal agencies to limit digital asset banking activity.
“What began as a trickle is now a flood: the US government is using the banking sector to organize a sophisticated, widespread crackdown against the crypto industry,” said Carter in his article titled “Operation Choke Point 2.0 is underway, and crypto is in its crosshairs.”
This became a rallying cry for digital asset advocates, with the term “Operation Choke Point 2.0” eventually making its way into the accepted political lexicon.
In February of this year, a House Financial Services subcommittee hearing was called to examine “the negative effects of the Biden Administration’s Operation Choke Point 2.0,” in which Subcommittee chair Dan Meuser (R-PA) argued it had been an official policy of the former administration “carried out by the prudential regulators to target and debank the digital asset ecosystem.”
Since identifying this as a concerted, Democrat—or more specifically Biden—led effort to stifle the digital asset space in the U.S., there has been a strong push-back, predominantly from Republicans. This countercharge naturally picked up pace with the arrival of crypto’s new Commander in Chief, Trump, in January.
Senate bill
On March 6, Senate Banking Committee Chair Tim Scott (R-SC) published a bill to combat digital asset debanking.
Named the ‘Financial Integrity and Regulation Management Act‘, it aims to curtail the “weaponization of federal banking agencies” by eliminating the ability for regulators to use reputational risk as a measure to determine the safety and soundness of regulated financial institutions.
“As Chairman of the Senate Banking Committee, I have made addressing debanking a top priority. This discriminatory and un-American practice should concern everyone, which is why I’ve led my colleagues in working to find tangible solutions,” said Scott.
He added that “it’s clear that federal regulators have abused reputational risk by carrying out a political agenda against federally legal businesses. This legislation, which eliminates all references to reputational risk in regulatory supervision, is the first step in ending debanking once and for all.”
Focusing on reputational risk, the bill would eliminate it as a component of supervision, remove Federal banking agencies’ ability to effect new rules or guidance that use reputational risk to supervise or regulate depository institutions and require such agencies to report to Congress on their elimination of reputational risk.
The proposed legislation was supported by all Banking Committee Republicans.
OCC falls in line
The day after Scott unveiled his anti-debanking bill, the OCC—an independent bureau within the Department of the Treasury that regulates and supervises all national banks and federal savings associations—clarified that digital asset activities are allowed in the federal banking system, in a notable reversal of its previous position.
In its March 7 “Letter 1183,” the agency confirmed that:
“Crypto-asset custody, certain stablecoin activities, and participation in independent node verification networks such as distributed ledger are permissible for national banks and federal savings associations.”
The letter also rescinded a requirement for OCC-supervised institutions to receive supervisory nonobjection—explicit approval from regulators—and demonstrate that they have adequate controls in place before they can engage in digital asset activities.
“Today’s action will reduce the burden on banks to engage in crypto-related activities and ensure that these bank activities are treated consistently by the OCC, regardless of the underlying technology,” said Acting Comptroller of the Currency Rodney Hood, in a statement on Friday. “I will continue to work diligently to ensure regulations are effective and not excessive, while maintaining a strong federal banking system.”
Along with this loosening of constraints, the OCC withdrew its participation in the January 2023 joint statement on crypto-asset risks, signaling the fall of another regulatory domino on the road to Trump’s crypto utopia.
The OCC announcement met with swift praise from Rep. Tim Scott, who said in a post on X on Friday: “I’m grateful to @USOCC Acting Comptroller Hood for taking much-needed action to rescind harmful Biden-era guidance which made it difficult for the digital assets industry to access financial services. Let’s make the U.S. the crypto capital of the world!”
Trump doubles down on complaints
On Friday, President Trump also repeated his calls to end digital asset debanking during the inaugural digital asset summit, which took place one day after the President signed an executive order to establish a strategic Bitcoin reserve for the U.S.
During the summit, Trump said the Biden administration had “strong-armed banks into closing the accounts of crypto businesses and entrepreneurs, effectively blocking some money transfers to and from exchanges, and they weaponized government against the entire industry.”
He added that, “I know that feeling also. Maybe better than you do.”
David Sacks, the President’s new “crypto czar,” was also in attendance and said of the recent regulatory and executive moves:
“I think it’s safe to say that the administration wants to end the war on crypto. We promised to do that. We want to end operation chokepoint 2.0, which unfairly persecuted and prosecuted founders just for starting crypto companies… they were often debanked—not just their companies, but them personally.”
While a ‘coordinated’ debanking of digital asset companies appears to be ending in the U.S., whether the administration’s machinations will persuade major banks to now welcome the oft-tumultuous and controversial industry with open arms is a different matter.
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