A regulatory assault on banks that provide services to the cryptocurrency business has drawn criticism from Republican senators in the United States, who claim that it might result in “punishing an entire industry.” The senators argued in a letter to Jerome Powell of the Federal Reserve, Michael Hsu of the Office of Comptroller of the Currency, and Marty Gruenberg of the Federal Deposit Insurance Corporation that discouraging the cryptocurrency sector might go beyond the scope of regulators’ authority and might affect other legitimate industries, with any industry potentially being “favored” based on a given regulator’s ideological viewpoint.
The letter also cited “Operational Choke Point,” a prior crackdown on legitimate gun suppliers carried out through financial system regulation, as an illustration of banking regulators acting excessively. The senators emphasised that authorities shouldn’t be punishing an entire business because of the faults of a small number of people. By March 24th, a response was requested.
The senators’ worries are in response to three regulators’ warnings that, in light of a string of collapses, they would handle banks’ contacts with cryptocurrency companies “carefully and cautiously” on January 3. Just two days ago, the heavily exposed bank Silvergate announced it would go into voluntary liquidation.
Discussions about how banks and the cryptocurrency industry interact have been going on for a while. Due to worries about compliance and regulatory issues, banks have been unwilling to offer services to cryptocurrency startups in the United States. As a result, many cryptocurrency businesses are now finding it difficult to cooperate with banks, which is impeding the industry’s expansion.
Yet lately, there have been a few encouraging developments. Alaska, which set the precedent for other banks to follow, became the first federally chartered digital asset bank in the United States in February. This action may open the door for additional conventional banks to enter the market and offer the cryptocurrency industry much-needed services.
Despite these encouraging achievements, the issues brought up by the Republican Senators reflect the difficulties the business is now facing. It is unclear whether the cryptocurrency industry will be able to realise its full potential given the legislative uncertainties and the absence of financial partners.