FDIC to review rule that may shape banks’ crypto relationships
News Summary
The Federal Deposit Insurance Corporation (FDIC) board is set to review a proposed rule regarding the “prohibition on use of reputation risk by regulators.” This initiative addresses allegations of “debanking” against crypto firms, a practice acting FDIC Chair Travis Hill has previously criticized as a justification to prevent banks from engaging in crypto-related activities. US President Donald Trump’s August executive order on “guaranteeing free banking” also raised concerns about “politicized or unlawful debanking” linked to reputation risk, although it did not explicitly mention digital assets. Prior to Trump taking office, the crypto industry widely alleged being denied banking services, a situation many dubbed “Operation Chokepoint 2.0.” Following President Trump’s re-election, during which “Operation Chokepoint 2.0” was a campaign issue, and Hill’s appointment, the FDIC indicated it would “reevaluate its supervisory approach to crypto-related activities.” Despite an ongoing US government shutdown, the FDIC has confirmed it will remain fully operational.
Background
Prior to President Trump's re-election in November 2024, the cryptocurrency industry widely alleged that U.S. regulators used informal means, such as leveraging "reputation risk," to pressure banks into severing ties with crypto firms. This series of actions was dubbed "Operation Chokepoint 2.0" by industry participants, aimed at restricting banking access for the digital asset sector. In 2022, publicly released court documents revealed that the FDIC had asked some institutions to "pause all crypto asset-related activity," further intensifying concerns about regulatory pressure. During his 2024 campaign, President Trump made "Operation Chokepoint 2.0" a key issue, promising to guarantee "free banking." In August 2025, he signed an executive order aimed at preventing regulators from misusing reputation risk for "politicized or unlawful debanking." Acting FDIC Chair Travis Hill had previously publicly criticized the use of reputation risk to deter banks from legitimate crypto activities. Following Trump's re-election, Hill indicated that the FDIC would reevaluate its supervisory approach to crypto activities, signaling a potential shift in regulatory stance.
In-Depth AI Insights
What are the deeper strategic objectives behind the Trump administration's move? - To solidify political support among crypto advocates and libertarian business factions, delivering on campaign promises by framing "debanking" as an exemplar of regulatory overreach and government intervention. - To stimulate digital asset innovation by reducing regulatory discretion, potentially attracting more capital and talent to the U.S. market, especially amidst diverging global regulatory stances on crypto. - On a broader scale, this aligns with his deregulation agenda, seeking to spur economic growth and market dynamism by curtailing federal agency power, even if it introduces certain financial stability risks. How might the FDIC's review of the "reputation risk" rule reshape the interaction between U.S. banking and the crypto industry? - If the weight of "reputation risk" in banking decisions is explicitly reduced, banks may become more willing to onboard crypto firms, as compliance risks become more quantifiable rather than subject to subjective interpretation. - This could prompt larger traditional banks (e.g., Bank of America, JPMorgan) to more actively explore partnerships with crypto exchanges, custodians, and stablecoin issuers, provided compliance requirements are met. - In the long term, crypto businesses could gain more stable banking access, reducing operational costs and uncertainty, fostering business expansion and product innovation, but potentially increasing traditional banks' exposure to money laundering and terrorist financing risks. What are the potential long-term implications of this regulatory shift for digital asset valuations and market structure? - Improved banking access will reduce systemic risk and capital costs for the digital asset industry, which could positively impact crypto valuations over the long term by decreasing market friction and improving liquidity. - Greater participation from traditional financial institutions may accelerate the institutionalization of digital assets, attracting more mainstream investors. Concurrently, it could drive industry consolidation, favoring crypto companies that can effectively manage compliance and secure banking support. - However, if the loosening of "reputation risk" leads to an increase in money laundering or other illicit activities, regulators might be forced to impose stricter measures, causing market volatility. Investors must weigh short-term benefits against long-term regulatory uncertainty.