Crypto Companies Report Being De-banked To Blockchain Association
Lobbying Group Requested Information From US Banking Regulators Last Week
By: Owen Fernau •DeFi News
The Blockchain Association, a non-profit organization focused on shaping pro-crypto policy in the United States, has received multiple reports from crypto companies claiming that they are being de-banked by traditional financial institutions.
“There have been some very interesting companies that have reached out,” said Kristen Smith, CEO of the Blockchain Association. “It’s very clear that banks are denying crypto companies access to bank accounts.”
The lobbying group had asked crypto companies which have had difficulty in retaining or finding banking services to contact it last week.
It is unclear whether banks are acting on their own or if government bodies are pressuring them to withhold services from crypto companies.
Smith sees the events of recent months as almost a regression in terms of crypto companies’ standing with banks. While it was hard for companies in the crypto space to get a bank account ten years ago, the process had become much easier since then.
Reaction To FTX’s Collapse
Everything changed last fall with the spectacular collapse of one of crypto’s largest exchanges.
“I actually think this is much more a reaction to what happened with FTX,” she said.
Smith highlighted that Sam Bankman-Fried, the former CEO of FTX who is currently on bail, was close to many regulators in Washington. “I think a lot of this is an effort to make sure that something like what happened with him doesn’t happen again,” she said.
So Smith isn’t ready to pin the de-banking of crypto companies as an effort by government officials to block the creation of a new blockchain-based financial system.
But she’s not willing to rule out deeper coordination of regulators and other government bodies either.
“From our perspective, there is a heck of a lot of smoke right now, and we know there’s a fire somewhere,” Smith said.
There is definitely smoke — Barney Frank, the former chairman of the House Financial Services Committee and co-sponsor of the Dodd-Frank Act, highlighted that the FDIC didn’t explicitly say that the crypto-friendly Signature Bank was insolvent before shuttering it on Mar. 12.
Additionally, Flagstar Bank assumed control of Signature’s deposits on Mar. 20, but the FDIC said the bank didn’t bid for the $4B of deposits pertaining to its “digital-assets” business.
“It’s one thing to try to lock out an industry from having access to a bank account,” Smith said. “It’s quite another thing to potentially take down a bank and take over control of [it].”
Crypto Needs Banks, For Now
Amid the frustration around de-banking, there’s some irony in crypto companies’ struggles to find consistent banking services. Anti-bank rhetoric isn’t uncommon in the crypto space — DeFi is often promoted as an alternative financial system, and Bitcoin’s launch even included an embedded message widely interpreted as a critique of bank bailouts.
Still, for now, crypto companies generally need banks to pay employees, taxes, and vendors, says Smith.
The Blockchain Association plans to take action based on their findings from the messages they receive from de-banked crypto companies and the results of a Freedom of Information Act (FOIA) request that they submitted to the Federal Reserve, FDIC, and the Office of the Comptroller of the Currency (OCC).
Smith anticipates a response to the FOIA request taking from six months to a year.
As de-banking concerns mount , the Blockchain Association, which offers a membership, has a more pressing problem — “the top priority is helping our member companies get bank accounts,” Smith said.