HOUSE FINANCIAL SERVICES COMMITTEE SUBCOMMITTEE HEARING
Overview
For questions on the note below, please contact Scott Parsons, Edmund Perry, or Ruth Lunsford.
On February 6, the House Financial Services Committee Subcommittee on Oversight and Investigations held a hearing entitled “Operation Choke Point 2.0: The Biden Administration’s Efforts to Put Crypto in the Crosshairs.” Witnesses in the open hearing were:
- Austin Campbell, Adjunct Professor, Stern School of Business, New York University
- Paul Grewal, Chief Legal Officer, Coinbase
- Fred Thiel, Chief Executive Officer, MARA
- Shayna Olesiuk, Director of Banking Policy, Better Markets
Below is a summary of the hearing prepared by Delta Strategy Group that includes several high-level takeaways, followed by summaries of opening statements and witness testimonies as well as a summary of the Q&A portion of the hearing.
Key Takeaways
The following is a summary of the main topics explored in the hearing. Each is discussed in further detail in the Discussion section below.
- The hearing focused on how banks were subjected to excessive regulatory scrutiny and pressure, effectively discouraging financial institutions from serving crypto companies. Republicans, led by Subcommittee Chairman Meuser (R-PA), raised concerns that federal regulators, particularly the Federal Deposit Insurance Corporation (FDIC), Securities and Exchange Commission (SEC), and Federal Reserve, weaponized banking regulatory agencies to debank legally operating crypto firms as a part of Operation Choke Point 2.0.
- Several Democrats questioned the legitimacy of the crypto industry, arguing that its high volatility, fraud risks, and history of illicit finance justified stricter oversight, with Representative Green dismissing “Operation Choke Point 2.0” as a partisan narrative to protect deregulation.
- Representative Meuser (R-PA) emphasized the need for the FDIC to provide clear guidance and regulatory responsibility for the digital asset industry, alongside creating a legislative framework for digital assets regulation. He called for prudential regulators to immediately allow the crypto industry access to financial services denied in a targeted effort to cripple the digitals assets ecosystem as a part of Operation Choke Point 2.0.
- Representative Moore (R-NC) and other Republicans emphasized that the U.S. regulatory crackdown is driving crypto firms offshore to jurisdictions with clearer rules. Austin Campbell proposed mandating all banking supervisory guidance be in writing and disclosed publicly after twelvemonths, prohibiting reputational risk as a justification for debanking, and ensuring banks provide written explanations for account closures. Grewal urged Congress to establish clear, fair regulations that allow crypto businesses to operate within the banking system, rather than subjecting them to arbitrary and opaque regulatory enforcement.
- Grewal and Campbell highlighted how regulators manipulated regulatory guidance and CAMELS ratings, downgrading banks that served crypto firms and forcing financial institutions to sever ties with the industry despite no formal prohibition.
Opening Statements & Testimony
Subcommittee Chairman Dan Meuser (R-PA)
Operation Choke Point 2.0 was executed by prudential regulators to target and debank the digital asset ecosystem. The FDIC using informal conversations and threats of supervisory actions to pressure banks into denying services to digital asset firms, their employees, and even their customers is an alarming abuse of regulatory power. This is exemplified through regulators issuing vague letters threatening banks with negative examination scores and fines if they continued working with digital asset companies. This overreach not only stifles innovation but also directly harms consumers by restricting access to new financial products. FDIC Chairman Travis Hill recently exposed these chokepoint activities, confirming that banks nationwide faced significant resistance when seeking to do business with crypto firms, pledging to correct the course. We will continue conducting oversight to ensure accountability and explore legislative solutions to prevent such actions in the future because access to capital and banking services is critical to the success of American businesses.
Subcommittee Ranking Member Al Green (D-TX)
The claim that the Biden Administration initiated “Operation Choke Point 2.0” to restrict the cryptocurrency industry’s access to banking services is entirely false. Federal financial regulators issued a joint statement in January 2023 warning banks about the risks associated with cryptocurrency assets, with these risks including fraud, misleading disclosures, and financial instability within the crypto sector. The collapse of crypto-affiliated banks validated these concerns, demonstrating that regulators were justified in urging banks to proceed with caution. This was not an effort to “debank” crypto firms but a responsible measure to protect investors and maintain financial stability.
Committee Chairman French Hill (R-AR)
Access to banking services is essential for building successful businesses and sustaining a thriving economy, but we are seeing banks, under the direction of a regulator, refuse to provide services. This occurred under the Biden-Harris Administration’s Operation Choke Point 2.0, which nearly severed the digital asset ecosystem from financial institutions. Unfortunately, we have seen troubling inconsistencies, not just in bank supervision but also at the SEC, such as Coinbase, an American company registered with the SEC, being unfairly targeted, while FTX, a criminal enterprise, operated unchecked.
Austin Campbell, Adjunct Professor, Stern School of Business, New York University
Operation Choke Point 2.0 points to a larger governance problem in banking regulation because it often happens behind closed doors, with little transparency or accountability, creating an environment ripe for abuse. A newly released FDIC document highlights how crypto companies were being denied accounts because regulators would not approve new banking activity, clients were being restricted or cut off because regulators instructed banks not to serve them, and that there was a concerted effort to frame all crypto-related activity as illicit or fundamentally incompatible with safety and soundness guidelines. The “M” for Management in the CAMELS rating system is dangerously subjective and enables regulatory overreach by allowing regulators to use their private opinions of a bank’s leadership to downgrade them and potentially put them out of business with no transparency or accountability. To prevent future abuses, this Committee should consider critical banking reforms, including mandating that all regulatory guidance be documented in writing; ensuring banking guidance is made public on a trailing basis; requiring banks to provide clear written reasons for service denials; eliminating “M” and sensitivity to rink from CAMELS ratings due to their susceptibility to misuse; and introducing independent oversight of banking regulators.
Paul Grewal, Chief Legal Officer, Coinbase
While crypto is the current target, any legal industry could be next as regulators weaponize banking services. The FDIC received recommendations in a report about setting clear time frames for assessing crypto risks and improving transparency, but more than a year later, no action has been taken. The FDIC pressured banks with relentless examinations until they relented, forcing them to deny stablecoin issuers accounts for reserves, increasing concentration risk and limiting opportunities for community banks. The FDIC privately discouraged banks from working with crypto firms while publicly denying it, with an alarming lack of transparency and regulatory bias. Coinbase has urged banking regulators to take specific actions, including withdrawing OCC Interpretative Letter 1179 and fostering innovative technology solutions. Beyond restoring banking access, Congress must pass legislation providing regulatory certainty for crypto to ensure fair and consistent oversight.
Fred Thiel, Chief Executive Officer, MARA
Discriminatory practices contradict our ethos of technological advancement and endanger economic competitiveness and national security, with financial exclusion restricting legitimate businesses from operating in the U.S. and driving capital offshore. Financial barriers stifle competition, slow investment, and set a dangerous precedent for financial censorship. Congress must take action to address these systemic issues, with four recommendations: (1) ensure equal access to financial services by prohibiting blanket bans on digital asset companies and requiring individualized risk assessments; (2) increase transparency by mandating financial institutions disclose reasons for account closures or denials to ensure due process; (3) establish clear regulations that allow digital asset businesses to operate without fear of arbitrary exclusion; (4) and recognize blockchain’s role in energy infrastructure and align financial policies with national security objectives. Without immediate action, financial discrimination will force innovation offshore, weakening America’s influence in a critical industry and jeopardizing long-term economic and national security.
Shayna Olesiuk, Director of Banking Policy, Better Markets
Many crypto companies have put themselves in the crosshairs by engaging in or enabling illicit conduct, otherwise they would not be at odds with regulators who are mandated to enforce the law and protect consumers, investors, and financial stability. This is also a matter of fairness as crypto should not receive an unfair advantage by operating under a different set of rules than traditional financial institutions. The explosive growth of crypto has introduced unprecedented risks, with banks and financial firms suffering devastating failures due to their involvement with crypto firms. Financial experts, regulators, and law enforcement have repeatedly warned of the dangers that crypto poses to financial stability. While access to banking services is crucial for a functioning economy, regulators have two fundamental responsibilities: ensuring banks comply with applicable laws and promoting safe and sound banking practices while taking corrective action when banks engage in unsafe behavior. Aligning with crypto often means aligning with high-risk, if not illegal, activity, involving a volatile product with no legitimate social use that could endanger the financial system and economy. These risks cannot be ignored.
Discussion
Representative Meuser (R-PA): Can you walk us through the specific directives or tactics regulators used to pressure banks into severing ties with legally operating businesses, and how these tactics have re-emerged in the context of crypto? Campbell: When communicating with regulators as a bank risk officer, you receive multiple layers of guidance, and there are written findings from examinations, but before extensive verbal guidance is given. The recently released pause letters from the FDIC show that banks were subjected to endless questioning with no clear endpoint, with this regulatory limbo effectively amounting to a prohibition. Regulators also punish persistence by downgrading CAMELS ratings, increasing operational risk, and even pressuring other banks to sever correspondent relationships, making it uneconomical to serve crypto clients. While no legal ban exists, there is a functional ban that deters for-profit institutions from engaging with the industry. While this was happening, the FDIC publicly insisted that banks were free to engage in crypto activity, which we now know was false.
Representative Wagner (R-MO): Do you believe the treatment by the prudential regulators related to digital assets differs from the treatment of other lines of business and that believe regulators are using debanking as a tool to advance an anti-digital asset agenda? How has overzealous enforcement and regulation by enforcement by the SEC hurt U.S. leadership in technology and financial innovation? Thiel: I do believe regulators are using debanking as a tool. A study by the Alternative Investment Management Association surveyed asset managers, finding that traditional firms had no banking access issues, yet 2/3 of crypto firms faced problems, even those with conservative investment strategies. The FDIC pause letters demonstrate regulators’ bias against crypto, relying on the circular reasoning that crypto is bad because it is risky, and it is risky because it is bad; Grewal: After years of asking and begging for regulatory clarity, Coinbase was sued by the SEC. We petitioned for formal rules, which were denied arbitrarily and later ruled capricious and baseless by the U.S. Court of Appeals. Despite dozens of attempts to meet with the SEC and propose clear industry standards, they refused to engage in meaningful dialogue.
Representative Loudermilk (R-GA): How do supervisory non-objection letters impact financial institutions, and how do they differ from Trump-era interpretive letters? Campbell: Supervisory non-objection letters require banks to seek regulatory approval to engage in basic banking activities. While regulators never explicitly say “no,” they create deliberate ambiguity to discourage banks from participating. Unlike interpretive letters, which are public and provide clarity, non-objection letters are secretive, individualized, and allow regulators to favor some banks over others. This lack of transparency enables regulators to say one thing publicly and do another privately. Our FOIA lawsuit against the FDIC uncovered that banks that sought permission to offer basic services were either ignored or subjected to endless reexaminations until they gave up. The relationship was adversarial, with banks left no choice but to comply with unwritten prohibitions.
Representative Garbarino (R-NY): How do companies like Coinbase approach know your customer (KYC) and anti-money laundering (AML) requirements, and can you describe issues that are considered when institutions are working through AML and KYC? Did banks cite concerns about your compliance before debanking? Grewal: We take KYC and AML compliance extremely seriously, employing hundreds of staff and thousands of contractors to uphold Bank Secrecy Act (BSA) obligations. Law enforcement prefers working with crypto over cash in criminal cases because blockchain transactions are traceable; Campbell: Compliance involves analyzing customer identity, business validity, fund sources, and transaction patterns to create a comprehensive analysis of financial behavior. If issues exist, they are specific and identifiable, such as an OFAC sanction listing or money laundering activity, not broad-based assumptions about an industry.
Representative Liccardo (D-CA): Should enforcement decisions require public explanations and be subject to third-party appeal? Olesiuk: Yes, regulators must take a risk-based approach to all industries, including crypto. We need clear, public rules and more disclosure requirements to ensure fair access to banking services.
Representative Liccardo (D-CA): Does withdrawing OCC Interpretative Letter 1179 resolve concerns, or is further legislation needed? Grewal: The withdrawal was a step in the right direction but insufficient. The FDIC never conducted risk assessments to justify crypto banking restrictions, and they heavily redacted documents in our FOIA case, which a federal court rejected. Congress must take action to ensure transparency.
Representative Haridopolos (R-FL): What steps did you take to engage regulators to stabilize the crypto banking environment? Grewal: Former SEC Chair Gensler consistently told crypto companies, including ours, to register, but when we examined the law, we found no clear legal basis for doing so. We proposed various ideas, such as allowing intermediaries like Coinbase to register or creating a framework for token issuers to submit disclosures that would better inform consumers, as well as suggested ways for the SEC to coordinate with the CFTC, but we were never invited back for further discussion.
Representative Moore (R-NC): Is U.S. financial regulation harming our ability to compete globally and which countries are more welcoming to financial innovation? Grewal: Absolutely, the absence of clear regulation has driven capital, jobs, and innovation abroad. The EU’s MiCA framework and Singapore’s crypto policies have attracted investment, while the U.S. is pushing innovation overseas due to the absence of reliable regulation.
Representative Warren (R-OH): Did the seizure of Signature Bank send a message to the industry, and do you think the intent was to make an example of them? Did regulators ever approve a crypto-friendly bank after thorough review? Grewal: Yes, it terrified the industry. Signature was fulfilling all regulatory requirements, yet its crypto-related business was forcibly shut down, which sent a clear signal to banks to stay away from crypto. To my knowledge, no crypto-affiliated bank was ever given full approval.
Representative Downing (R-MT): What should regulators do to protect digital asset financial stability? Grewal: They should set clear rules and ensure transparency in decision-making rather than relying on secrecy and delay tactics to exhaust firms into submission.
Representative Steil (R-WI): How is traditional risk different from reputational risk, and could it be used as a shield for regulators to inject political objectives into the banking system, particularly in the case of crypto? Campbell: Reputational risk is when we believe a bank is doing something that could damage its reputation and cause customers to disfavor it versus forms of business risk that are more objective. Reputational risk can be used as a shield for regulators; Grewal: Reputational risk should not used as a catch-all or an excuse for other considerations that have no basis in law. Additional guidance from Congress would be extraordinarily helpful in delineating applicable risks and restricting the use of reputational risk based on political favor or disfavor.