FDIC Vice Chair urges more open approach to crypto, slams 'Choke Point-like tactics'

Federal Deposit Insurance Corporation Vice Chair Travis Hill said the agency should be clearer in how banks work with crypto following criticism that the government is shutting out the industry. 

In a speech posted on Friday, Hill said he expects the agency, which insures deposits in U.S. banks, to take a more "open-minded approach" to technology and called for more guidance on digital assets. Hill is reportedly poised to be acting chair of the FDIC and is currently second-in-command. He was nominated as a Republican to the FDIC in 2022. 

Hill's remarks follow concerns from some in the crypto industry that the FDIC had asked financial institutions to pause crypto-related activity. Coinbase, Coinbase, through consultant firm History Associates Inc., sued the FDIC in June and accused the agency of trying to cut off the crypto industry from the banking sector. The lawsuit also requested the FDIC's "pause letters."

According to a 2023 report from the FDIC's Office of Inspector General, the agency began issuing "pause letters" to some financial institutions between March 2022 and May 2023, asking them not to expand crypto-related activities and provide more information. The office is tasked with evaluating the FDIC.

Hill said federal agencies' approaches have shifted to engaging with institutions on a case-by-case, more individual basis, instead of laying out clear expectations for how banks can work with digital assets. 

"I have talked in the past about how damaging this approach has been, as it has stifled innovation and contributed to a public perception that the FDIC is closed for business if institutions are interested in anything related to blockchain or distributed ledger technology," Hill said. 

Hill also referenced Operation Choke Point in his speech. Some in the crypto industry use the phrase "Operation Choke Point 2.0" to compare it with Operation Choke Point 1.0, a 2013 U.S. Department of Justice Initiative that sought to limit banking services for industries considered high-risk for fraud and money laundering, including payday lenders and firearm dealers.

"While adopting a new approach to digital assets — and putting an end to any and all Choke Point-like tactics — are essential first steps, regulators also need to reevaluate our approach to implementing the Bank Secrecy Act (BSA)," Hill said. "While we all share the goal of ensuring criminals and terrorists are not using the banking system to fund drug trafficking, terrorism, and other serious crimes, the current BSA regime creates an incentive for banks to close accounts rather than risk massive fines for inadequate BSA compliance."

The FDIC has been steadfast in its approach in that it does not discourage financial institutions from working with crypto.  In 2024 Risk Review report, the FDIC said that it and other agencies "continue to emphasize that banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type."

Hill has previously criticized other agencies' relationships with crypto, specifically the U.S. Securities and Exchange Commission's handling of a controversial crypto accounting guidance called Staff Accounting Bulletin 121, or SAB 121. Released in March 2022, the bulletin requires firms that custody cryptocurrencies to record their customers' crypto holdings as liabilities on their balance sheets. 

"This treatment sharply departs from how custodians account for all other assets held in custody, which are generally held off balance sheet and treated as the property of the customer, not the custodian," Hill said in March.