Federal Deposit Insurance Corporation Sparks Controversy Over Crypto Influence Fears

Key Points:

• The Federal Deposit Insurance Corporation has instructed U.S. banks to limit or cease providing banking services to cryptocurrency operators.
• Coinbase has criticized the FDIC’s actions, claiming they are aimed at blocking crypto firms from accessing banking services.

According to Reuters, documents revealing the Federal Deposit Insurance Corporation instructing U.S. banks to either limit or halt the facilitation of banking services for cryptocurrency operators raised eyebrows on many occasions.

Read more: FDIC Flags Complex Risks For US Banking Amidst Digital Asset Surge  

Federal Deposit Insurance Corporation Tell Banks to Curtail Crypto Services

The Federal Deposit Insurance Corporation, one of the most prominent regulators in banking, issued warnings through 2022 and into 2023, which many perceived as controversial moves to cut ties between cryptocurrency and traditional finance.

The revelation came after Coinbase, one of the largest cryptocurrency trading platforms, filed a request with the FDIC to disclose internal communications about the matter.

The FDIC, under court order, published a redacted version of the documents last month. Included were internal guidelines for regulatory staff on how to approach banks that deal with cryptocurrency companies.

An internal FDIC memo differentiates between banks that directly hold cryptocurrency assets- which would warrant heightened supervision- and those that only provide traditional services, such as lending and deposit accounts, to cryptocurrency clients.

U.S. Lawmakers Probe FDIC’s Restrictions on Crypto Industry

The legal chief of Coinbase, Paul Grewel, has assailed the FDIC’s move, contending that the agency is intentionally impeding the access of the cryptocurrency industry to banking services.

For such growing concerns, U.S. lawmakers are taking action. Representative French Hill, R-AR, said he would review potential overreach by agencies like the FDIC for possible regulatory reforms.

In contrast, the Federal Deposit Insurance Corporation claims that it is trying to mitigate the risks related to crypto-related activities, which it believes present a growing threat to financial stability and consumer protection. It has highlighted that it is not trying to “debank” crypto firms but remains concerned about direct cryptocurrency engagements by banks.