Toomey questions FDIC about ‘Chokepoint’-like attacks on banks and crypto

WASHINGTON — Sen. Pat Toomey, R-Pa., is pushing the Federal Deposit Insurance Corp. on its stance on banks’ involvement in cryptocurrency, questioning whether the agency is “wrongly” discouraging banks from offering cryptocurrency services.

In a letter obtained by American Banker to FDIC Acting Chairman Martin Gruenberg, Toomey — who serves as the ranking member of the Senate Banking Committee — says his office has received complaints that employees at the agency’s Washington headquarters have encouraged the FDIC’s regional offices to send letters to banks that have asked to dip their toes into offering some sort of crypto-related services, asking those banks to refrain from expanding their relationships with crypto-related companies.

Andrew Harrer/Bloomberg

“Given the FDIC’s involvement under their leadership in the Obama administration’s infamous Operation Choke Point, which sought to force banks to deny service to legitimate but politically unfavorable businesses, it is important to better understand the actions the FDIC is now taking and the legal basis for them, ” Toomey said.

In response to Toomey’s letter, the FDIC said that asking institutions to delay or refrain from engaging in cryptocurrency-related activities are “necessary and appropriate” actions, “given the risks readily apparent in the cryptocurrency markets.”

“The FDIC is acting in accordance with long-standing legal authorities to ensure that banks that engage in crypto-related activities do so in a safe and sound manner that protects consumers,” the agency said. “This could involve the FDIC requesting that an institution delay initiating or refrain from expanding crypto-related activities until supervisory feedback is taken into account.”

The FDIC, along with the Office of the Comptroller of the Currency, has asked the banks to check in with the agency if the bank currently or plans to engage in crypto-related activities. Banking agencies have hailed their cautious approach to crypto as digital assets experienced market turbulence earlier this year, saying regulators’ fear of allowing banks to become more involved in crypto helped insulate the traditional financial sector from that turmoil.

Banking groups in Washington, meanwhile, are are beginning to push for a greater role for the banks in the digital resource landscape.

Toomey’s letter is also the latest in a series of high-profile attempts by lawmakers to push regulators to set more explicit rules around how banks interact with cryptocurrency, reflecting the growing polarization between Republicans and Democrats on the issue.

Last week, a group of prominent Democrats consisting of Sens. Elizabeth Warren, D-Mass., Dick Durbin, D-Ill., Sheldon Whitehouse, D-Rhode Island, and Bernie Sanders, I-Vt., sent a letter urges OCC to repeal Trump-era regulatory guidance which authorized national banks to explore digital assets and other crypto-related banking activities.

In his Tuesday letter to the FDIC, Toomey said his office received reports that the agency’s headquarters in Washington provided regional offices with draft letters to send to banks, asking them to withdraw from doing more business with cryptocurrency companies.

The FDIC did not provide “any legal basis for sending such letters,” Toomey said.

In at least one letter seen by American Banker, a bank planned to give customers access to a crypto-related company’s trading platform via the bank’s mobile or internet app. According to Toomey’s letter, customers would have “received clear disclosures” that neither the crypto company nor the digital assets were FDIC insured.

“This arrangement appears similar to the common practice of banks partnering with third parties to allow customers to access services such as stock trading platforms,” ​​Toomey said in the letter.

Confusing and misleading representations of FDIC insurance, especially when it comes to crypto companies, is a growing area of ​​concern for the agency. The FDIC has ordered Voyager, the bankrupt crypto firm, to take it down “false and misleading” claims about deposit insuranceand has warned the banks about the dangers of crypto company partners which exaggerates the protection offered to consumers.

Toomey is asking the FDIC if, “on or about June 6, 2022,” an FDIC employee instructed some of the agency’s regional offices to ask banks to hold off on expanding their relationship with a crypto-related company. The letter also questions whether on the same date an FDIC official or employee sent “to FDIC regional offices a memorandum regarding procedures for reviewing notices of engagement in crypto-related activities.”

The letter also says Toomey’s office received whistleblowers that headquarters staff contacted regional examination staff “to question their assessment of a loan made by a bank to a crypto-related company and to urge them to downgrade their classification of the loan.” “

“It is my understanding that it is highly atypical for FDIC headquarters personnel to be involved in evaluating an individual loan,” Toomey said.

Toomey asked the FDIC for a response by August 30.