Toomey questions FDIC over 'Choke Point'-esque crackdown on banks and crypto

WASHINGTON — Sen. Pat Toomey, R-Pa., is pressing the Federal Deposit Insurance Corp. on its stance toward banks involvement in cryptocurrency, questioning if the agency is "improperly" deterring banks from offering cryptocurrency services.  

In a letter obtained by American Banker to Martin Gruenberg, the acting chairman of the FDIC, Toomey, the ranking GOP member of the Senate Banking Committee, says that his office has received complaints that staff in the agency's Washington headquarters have urged FDIC regional offices to send letters to banks who've asked to dip their toes into offering some kind of crypto-related services, asking those banks to refrain from expanding their relationship with crypto-related companies. 

Sen. Pat Toomey, R-Pa.
Sen. Pat Toomey, a Republican from Pennsylvania, alleged that the FDIC is "improperly" discouraging banks from dipping their toes into the crypto waters.
Andrew Harrer/Bloomberg

"Given the FDIC's involvement under your leadership in the Obama administration's notorious Operation Choke Point, which sought to coerce banks into denying services to legal yet politically disfavored 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 crypto-asset markets."

"The FDIC is acting consistent with longstanding legal authorities to ensure that banks engaging in crypto-related activities are doing so in a safe and sound way that protects consumers," the agency said. "This may 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 banks to check in with the agency if the bank is currently or planning on pursuing any crypto-related activities. Banking agencies have lauded their cautious approach to crypto as digital assets experienced turbulence in markets earlier this year, saying that regulators' trepidation to letting banks get more involved with crypto helped insulate the traditional financial sector from that turmoil. 

Banking groups in Washington, meanwhile, are starting to push for a larger role for banks in the digital assets landscape. 

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

Last week, a group of prominent Democrats made up of Sen. Elizabeth Warren, D-Mass., Dick Durbin, D-Ill., Sheldon Whitehouse, D-Rhode Island, and Bernie Sanders, I-Vt., sent a letter calling on the OCC to rescind Trump-era regulatory guidance that cleared national banks to explore digital assets and other crypto-related banking activity. 

In his Tuesday letter to the FDIC, Toomey said that his office received reports of the agency's Washington headquarters gave regional offices draft letters to send to banks, requesting that they pull back 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 viewed 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 so customers can access services like stock trading platforms," Toomey said in the letter. 

Confusing and misleading representations of FDIC insurance, particularly as it relates to crypto companies, is a growing area of concern for the agency. The FDIC has ordered Voyager, the bankrupt crypto firm, to take down "false and misleading" claims of deposit insurance, and has warned banks of the dangers posed by crypto-company partners that overstate the protections afforded to consumers. 

Toomey asks the FDIC if, "on or about June 6, 2022," any FDIC employee instructed any 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 if, on the same date, any FDIC official or employee sent  "to any FDIC regional offices a memorandum regarding procedures for reviewing notifications of engagement in crypto-related activities." 

The letter also says that Toomey's office received whistleblower reports that headquarters employees contacted regional examination staff "to question their review 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 reviewing an individual loan," Toomey said. 

Toomey asked the FDIC for a response by Aug. 30.

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