[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
OPERATION CHOKE POINT 2.0:
THE BIDEN ADMINISTRATION'S EFFORTS
TO PUT CRYPTO IN THE CROSSHAIRS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND
INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
__________
FEBRUARY 6, 2025
__________
Serial No. 119-2
Printed for the use of the Committee on Financial Services
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
59-598 PDF WASHINGTON : 2025
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HOUSE COMMITTEE ON FINANCIAL SERVICES
FRENCH HILL, Arkansas, Chairman
BILL HUIZENGA, Michigan, Vice MAXINE WATERS, California, Ranking
Chairman Member
FRANK D. LUCAS, Oklahoma SYLVIA R. GARCIA, Texas, Vice
PETE SESSIONS, Texas Ranking Member
ANN WAGNER, Missouri NYDIA M. VELAZQUEZ, New York
ANDY BARR, Kentucky BRAD SHERMAN, California
ROGER WILLIAMS, Texas GREGORY W. MEEKS, New York
TOM EMMER, Minnesota DAVID SCOTT, Georgia
BARRY LOUDERMILK, Georgia STEPHEN F. LYNCH, Massachusetts
WARREN DAVIDSON, Ohio AL GREEN, Texas
JOHN W. ROSE, Tennessee EMANUEL CLEAVER, Missouri
BRYAN STEIL, Wisconsin JAMES A. HIMES, Connecticut
WILLIAM R. TIMMONS, IV, South BILL FOSTER, Illinois
Carolina JOYCE BEATTY, Ohio
MARLIN STUTZMAN, Indiana JUAN VARGAS, California
RALPH NORMAN, South Carolina JOSH GOTTHEIMER, New Jersey
DANIEL MEUSER, Pennsylvania VICENTE GONZALEZ, Texas
YOUNG KIM, California SEAN CASTEN, Illinois
BYRON DONALDS, Florida AYANNA PRESSLEY, Massachusetts
ANDREW R. GARBARINO, New York RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin RITCHIE TORRES, New York
MIKE FLOOD, Nebraska NIKEMA WILLIAMS, Georgia
MICHAEL LAWLER, New York BRITTANY PETTERSEN, Colorado
MONICA DE LA CRUZ, Texas CLEO FIELDS, Louisiana
ANDREW OGLES, Tennessee JANELLE BYNUM, Oregon
ZACHARY NUNN, Iowa SAM LICCARDO, California
LISA McCLAIN, Michigan
MARIA SALAZAR, Florida
TROY DOWNING, Montana
MIKE HARIDOPOLOS, Florida
TIM MOORE, North Carolina
Ben Johnson, Staff Director
------
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
DANIEL MEUSER, Pennsylvania, Chairman
TIM MOORE, North Carolina, Vice AL GREEN, Texas, Ranking Member
Chairman RASHIDA TLAIB, Michigan
ANN WAGNER, Missouri NIKEMA WILLIAMS, Georgia
BARRY LOUDERMILK, Georgia CLEO FIELDS, Louisiana
ANDREW GARBARINO, New York SAM LICCARDO, California
ANDY OGLES, Tennessee
MIKE HARIDOPOLOS, Florida
C O N T E N T S
----------
Thursday, February 6, 2025
OPENING STATMENTS
Page
Hon. Daniel Meuser, Chairman of the Subcommittee on Oversight and
Investigations, a U.S. Representative from Pennsylvania........ 2
Hon. Al Green, Ranking Member of the Subcommittee on Oversight
and Investigations, a U.S. Representative from Texas........... 3
STATEMENTS
Hon. French Hill, Chairman of the Committee on Financial
Services, a U.S. Representative from Arkansas.................. 4
WITNESSES
Mr. Austin Campbell, Acting CEO of Worldwide Stablecoin Payment
Network (WSPN) U.S.A., Managing Partner and Founder of Zero
Knowledge Consulting, Adjunct Professor, Stern School of
Business, New York University.................................. 5
Prepared Statement........................................... 7
Mr. Paul Grewal, Chief Legal Officer, Coinbase Global, Inc....... 25
Prepared Statement........................................... 27
Mr. Fred Thiel, Chairman of the Board of Directors and Chief
Executive Officer, Marathon Digital Holdings (MARA)............ 225
Prepared Statement........................................... 227
Ms. Shayna Olesiuk, Director of Banking Policy, Better Markets... 231
Prepared Statement........................................... 233
APPENDIX
MATERIALS SUBMITTED FOR THE RECORD
Hon. Daniel Meuser:
The U.S. Department of Treasury.............................. 278
Hon. Maxine Waters:
Public Citizen............................................... 279
The United States Cannabis Roundtable........................ 283
Defense Credit Union Council (DCUC).......................... 285
RESPONSES TO QUESTIONS FOR THE RECORD
Written responses to questions for the record from Representative
Maxine Waters
Mr. Paul Grewal.............................................. 287
Mr. Fred Theil............................................... 288
Ms. Shayna Olesiuk........................................... 289
OPERATION CHOKE POINT 2.0:.
THE BIDEN ADMINISTRATION'S EFFORTS TO PUT CRYPTO IN THE CROSSHAIRS
----------
Thursday, February 6, 2025
U.S. House of Representatives,
Subcommittee on Oversight and Investigations,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:03 p.m., in
room 2128, Rayburn House Office Building, Hon. Dan Meuser
[chairman of the subcommittee] presiding.
Members Present: Representatives Meuser, Wagner,
Loudermilk, Garbarino, Haridopolos, Moore, Waters, Green,
Tlaib, Williams of Georgia, Fields, and Liccardo.
Also present: Representatives Hill, Davidson, Steil, and
Downing.
Chairman Meuser. Ladies and gentlemen, the Subcommittee on
Oversight and Investigations will come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
This hearing is entitled, ``Operation Choke Point 2.0: The
Biden Administration's Efforts to Put Crypto in the
Crosshairs.''
Without objection, all members will have 5 legislative days
within which to submit extraneous materials to the chair for
inclusion in the record.
As a point of personal privilege, I want to say, this is
our first hearing of Oversight and Investigations for the
Financial Services Committee for the 119th Congress, so I
appreciate very much everyone being here, and we look forward
to a very productive, civil and worthwhile time together. I am
pleased that we have our full committee chairman, Chairman
Hill, with us.
Now, on another point of personal privilege, I would like
to yield to our Ranking Member, Representative Al Green.
Mr. Green. Thank you, Mr. Chairman. I am honored to
congratulate you on your new position, your new station in
life. I do look forward to working with you. I welcome all of
the members to the committee and would indicate that I
appreciate your kindness and generosity in agreeing to allow me
to have next-to-the-last opportunity to speak at committee
hearings. Again, I am grateful.
Chairman Meuser. Very good. Thank you.
I now recognize myself for 4 minutes to give an opening
statement.
OPENING STATEMENT OF HON. DANIEL MEUSER, CHAIRMAN OF THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS OF THE COMMITTEE
ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM PENNSYLVANIA
Chairman Meuser. Today's hearing is entitled, ``Operation
Choke Point 2.0: The Biden Administration's Effort to Put
Crypto in the Crosshairs.'' I would like to thank the witnesses
very much for appearing before the committee today to share
their experience, their great experience and expertise on this
issue.
The Biden Administration's Operation Choke Point 2.0 was
carried out by the prudential regulators to target and, in
fact, debank the digital asset ecosystem. The Federal Deposit
Insurance Corporation (FDIC) used offline conversations and
threats of formal supervisory actions to pressure banks to deny
service to digital asset firms, their employees, and even their
customers. This is a serious abuse of regulatory power.
Unfortunately, you would be wrong to assume this is the first
attempt to debank an entire industry.
Beginning in 2013, Obama's Department of Justice enlisted
bank regulators in the first iteration of Operation Choke
Point. President Obama's Operation Choke Point targeted gun
manufacturers, payday loan companies, our energy industry, and
other businesses and legal industries that were disfavored by
the Obama Administration. Their plan was straightforward, use
the prudential regulators' authority to threaten supervisory
action against banks who chose to provide services to these
industries. After that, the bank has an ultimatum: continue to
bank these customers under the looming threat of scrutiny or
comply with the regulators' demands and remove that line of
business from their books.
The Biden Administration broke out the same playbook. This
time, their target was the digital asset ecosystem. Biden
regulators resorted to vague, interpretive, regulatory letters
threatening banks with negative examination scores and fines if
they continue their partnership with digital asset companies.
This is a serious overreach, one that only--not only undermines
innovation, but directly harms consumers by restricting their
access to new and beneficial financial products.
Acting FDIC, Chairman Travis Hill, just yesterday exposed
Biden's Choke Point activities that debank crypto firms across
the country. He said, ``Requests from banks were almost
universally met with resistance both individually and
collectively.'' These and other actions sent the message to
banks that it would be extraordinarily difficult, if not
possible, to move forward. As a result, the vast majority of
banks simply stopped trying to do business with crypto
companies.
However, the FDIC promised to correct course moving
forward, and I will continue to conduct oversight on their
progress--we will continue to conduct oversight on their
progress and determine legislative solutions--very much
solutions, to emphasize--to make sure this does not happen
again.
Access to capital and banking services are critical to the
success of American businesses, and that is why I am looking
forward to hearing from our witnesses today about how the
regulators have been carrying this out, and to discuss
solutions to make sure it stops. The free market thrives when
innovation is allowed to flourish. Regulators have a duty to
protect our financial system, but not at the expense of
legitimate businesses like energy and crypto companies.
I yield back.
The chair now recognizes the ranking member of the
subcommittee, the gentleman from Texas, Mr. Green, for 4
minutes for his opening statement.
OPENING STATEMENT OF HON. AL GREEN, RANKING MEMBER OF THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS OF THE COMMITTEE
ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM TEXAS
Mr. Green. Thank you, Mr. Chairman.
Yes, the title of this hearing is, ``Operation Choke Point
2.0: The Biden Administration's Efforts to Put Crypto in the
Crosshairs.'' However, a better title for this hearing is how
President Trump's self-dealing deregulation will put well-
intentioned investors at risk. The name, ``Operation 2.0''
refers to a fake program never initiated by the Biden
Administration to restrict the cryptocurrency industry's access
to the banking system. The Biden Administration did not
prohibit banks from dealing with cryptocurrency companies.
In January 2023, Federal financial regulators issued a
joint statement warning banks about cryptocurrency asset risk,
including, but not limited to, the risk of fraud and scams
among crypto asset firms, the risk of inaccurate or misleading
representations and disclosures by crypto asset companies, and
many other risks.
In March 2023, Silvergate Bank and Signature Bank, two key
crypto firms--pardon me, two key firms in the cryptocurrency
banking industry failed in part due to their involvement with
the digital asset sector. For example, between 2014 and 2021,
the share of Silvergate's crypto firm deposits increased from 1
percent of total deposits to a high of more than 98 percent.
The failure of these banks demonstrated that the concerns
financial regulators had regarding bank exposure to
cryptocurrency risk were well-founded. Regulators asking banks
to consider the risk associated with the cryptocurrency
industry does not amount to debanking, as my Republican friends
are indicating. Regulators simply urged banks to exercise
caution when dealing with this emerging and potentially risky
industry.
Unfortunately, this hearing aid the Trump deregulatory pro-
crypto agenda. As just days before President Trump's
Inauguration, he issued what I call a Money Trump Meme Coin
that was heavily promoted on social media. Investors who may
see this coin as a way to get rich quick may be overpaying for
something of dubious value and could be left holding the bag
after a sell-off.
Notably, the Money Trump Coin's terms and conditions
restrict buyers from bringing class-action lawsuits, even if
they are swindled. Beyond the lack of investor protections and
transparency, issuance of the Money Trump Coin also creates an
avenue to circumvent national security and anti-corruption laws
allowing any interested party, including adversaries and
allies, to anonymously transfer money to the President and his
family.
I yield back the balance of my time.
Chairman Meuser. The gentleman yields.
The chair now recognizes the Chairman of the full
committee, Mr. Hill, for 1 minute.
STATEMENT OF HON. FRENCH HILL, CHAIRMAN OF THE COMMITTEE ON
FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM ARKANSAS
Mr. Hill. I thank the chairman. Congratulations, Chairman
Meuser, for your first hearing on this important topic.
I want to thank our witnesses for being with us today and
sharing your views.
Access to banking services is critical to building a
successful business and to growing our thriving economy.
Consider what happens when a bank refuses to provide services
to your company at the direction of a bank regulator. That is
exactly what was happening under the Biden-Harris' policy of
Operation Choke Point 2.0, which nearly severed the digital
asset ecosystem from financial institutions. Our regulators'
highest priority should be promoting safety and soundness--
true--at all of our financial institutions but not picking
winners and losers.
We saw this not only in our bank supervision, but also at
the Securities Exchange Commission (SEC) where one of our
witnesses today, Coinbase, an American company, registered as a
public company with the SEC was treated poorly, and Future
Exchange Trading Ltd. (FTX), a criminal organization, was not
even investigated. Yield back.
Chairman Meuser. The gentleman yields.
We will now go to our witnesses, and I will have the honor
of introducing each.
First, we have--our first witness, Mr. Austin Campbell. Mr.
Campbell is the Acting CEO of Worldwide Stablecoin Payment
Network (WSPN) U.S.A., Managing Partner and Founder of Zero
Knowledge Consulting, and Adjunct Professor at New York
University Stern School of Business. Previously, Austin has
held multiple roles in the financial world, including running
trading desks at J.P. Morgan and Citi (Citibank) for over a
decade, running the stablecoin platform at Paxos, and being a
Portfolio Manager and Structure at Stone Ridge and New York
Digital Investment Group, LLC (NYDIG). Welcome.
Our next witness is Mr. Paul Grewal. Paul Grewal is the
Chief Legal Officer of Coinbase Global, Inc., where he is
responsible for Coinbase's legal compliance, global
intelligence, and government relations groups. Before joining
Coinbase, Paul was Vice President and Deputy General Counsel at
Facebook and served as U.S. Magistrate Judge for the U.S.
District Court for the Northern District of California. Thank
you very much for being here.
Next is Mr. Fred Thiel, the Chairman of the Board of
Directors and Chief Executive Officer of Marathon Digital
Holdings (MARA). He has over 35 years of extensive experience
in the technology sector. He is an acclaimed innovator and
expert, having led organizations across diverse fields,
including digital assets, artificial intelligence (AI),
semiconductors, and enterprise software. I appreciate you being
here.
Our last witness is Ms. Shayna Olesiuk. She is the Director
of Banking Policy at Better Markets. She previously was the
Deputy Director of the Division of Insurance and Research at
the FDIC and has more than 25 years of public sector nonprofit
experience in banking, finance, and economics.
Again, we thank you all for taking your time to be here.
Each of you will be recognized for 5 minutes to give an oral
opening presentation of your testimony. Without objection, your
written statements will be made part of the record.
Mr. Campbell, you are now recognized for 5 minutes for your
remarks.
STATEMENT OF AUSTIN CAMPBELL, ACTING CEO OF WSPN U.S.A.,
MANAGAING PARTNER AND FOUNDER OF ZERO KNOWLEDGE CONSULTING, AND
ADJUNCT PROFESSOR, STERN SCHOOL OF BUSINESS, NEW YORK
UNIVERSITY
Mr. Campbell. Thank you, Chairman Meuser and thank you to
the entire committee for the opportunity to testify today, and
all the staffers working behind them to make this happen.
Chairman Meuser. Mr. Campbell--
Mr. Campbell. Yes.
Chairman Meuser [continuing]. is your mic on?
Mr. Campbell. My mic appears to be on.
Chairman Meuser. All right.
Mr. Campbell. Is this better?
Chairman Meuser. That is better. Thank you.
Mr. Campbell. All right. Excellent. Thank you, Chairman
Meuser, appreciate the opportunity to testify today, and all of
the members and staff working on this hearing.
Today, we are here to talk about Operation Choke Point 2.0,
which everybody will note means there was an Operation Choke
Point 1.0 prior to this Congress that also had to be addressed.
Before we get to the specifics of the crypto industry, I would
say this indicates we have a governance issue with banking
regulation writ large. The fact that supervision is often
confidential, hidden, and nobody knows exactly what happened
itself is a problem that leads to abuse. I would suggest to the
committee that without addressing this there will be hearings
on Operation Choke Point 3.0 and 4.0 and 5.0 onward to
infinity.
What happened with 2.0? It was an attempt to debank the
crypto industry in America, and by debank, I want to be
specific and say the denial of banking services that are
considered basic and fundamental to operating a business. This
is not, you do not get approved for a mortgage. This is not,
you do not get a loan on favorable terms. This is, I cannot get
a checking account to make payroll, to pay rent, to pay
utilities, to pay taxes. It is that specific area where there
were severe problems for crypto companies from 2022 to present
within the U.S. financial system.
There was a document dropped from the FDIC yesterday that
highlights some of these problems, but within it, you will see
specific mentions of crypto companies being denied accounts
because regulators would not approve new banking activity. You
will see specific clients being limited or eliminated by banks
because regulators told them they were not allowed to bank
them, and you will see a concerted campaign to characterize all
forms of activity touching the crypto space as illicit or
extremely incompatible with safety and soundness guidelines.
How does this work? The FDIC has a rubric called, Capital
adequacy, Asset quality, Management earnings, Liquidity, and
Sensitivity (CAMELS), and I am sorry, it does not refer to the
animal. That is an acronym that they use to actually think
about bank risk, and it covers things like capital, assets,
liquidity, objective and verifiable concerns. The dangerous one
is the letter in the middle, the hump in CAMELS, the M, and
this is management. Management serves as a subjective measure
of a banking regulator's belief of the competence or behavior
of the management of a bank. Importantly, whatever your CAMELS
rating is, it is the ceiling on your total rating as a bank.
If I have a bank that does nothing but take money for
checking accounts and buys Treasury Bills (T-bills) which would
be the safest bank in the entire ecosystem in the United States
of America, but a banking regulator decides for subjective
reasons that management is poor and downgrades them. That bank
could be put out of business purely on the subject of judgment
of a regulator in private, as all of that will remain
confidential.
This is a vehicle for abuse, and it is also an area where
the safety and soundness concerns, which on a stand-alone basis
are legitimate, become warped, and they can be used as a tool
to discriminate against industries, against individuals on any
basis people want because it is not discoverable.
In my written testimony, I go into this in greater detail,
but I believe there are important reforms this committee should
consider with regard to how this behavior happens in the
banking space. A simple one is that all banking guidance should
be written. Do not allow verbal guidance, do not allow hearsay
and subjective statements, write it down. Second, that guidance
should be made public on some trailing basis. Once you have a
paper trail of what the regulators are doing, we will be having
many less of these hearings. We will know exactly what has
happened. When banks refuse people's services, they should have
to tell them why, and those statements should be written,
complete, and transparent.
Last, they should abolish management and reputational risk
as components of the rating of banks. Those are subjective,
ripe for abuse, and can be used for really any ends that a
banking regulator would like to wedge into an otherwise
relatively objective framework.
Finally, I am a professor. I would not let any of my
students grade their own homework. You should not be letting
the banking regulators grade their own work here either. Agency
decisions should be subject to outside oversight. Do not let a
banking regulator like the FDIC be judge, jury, and executioner
in private.
Thank you, Chairman.
[The prepared statement of Mr. Campbell follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Meuser. Thank you, Mr. Campbell.
Mr. Grewal, you are now recognized for 5 minutes for your
remarks.
STATEMENT OF PAUL GREWAL, CHIEF LEGAL OFFICER, COINBASE GLOBAL,
INC.
Mr. Grewal. Chairman Meuser, Ranking Member Green, and
distinguished members and staff of the committee, thank you for
the opportunity to testify today. My name is Paul Grewal, and I
serve as the Chief Legal Officer at Coinbase, the largest
publicly traded crypto company in the United States.
Today I want to shed light on the systematic effort to
debank the American crypto industry, and then to deny it the
legal protections afforded by Congress and the courts. While
crypto is the current target, any legal American industry could
be next if regulators continue to use banking services as a
political weapon. My focus today is on the actions of the FDIC.
In March 2022, the FDIC began sending letters to senior
bank officials urging them to stop all crypto-related activity
with no clear timeline for review, or for sharing any analysis
of explicit risks. The letters continued well into 2023. In
October 2023, the FDIC's own inspector general issued a report
making clear the FDIC was actively limiting financial
innovation with little regard to actual risk to the financial
system.
That Inspector General (IG) report recommended the FDIC
establish a plan with time frames for assessing crypto-related
risk and clarifying the supervisory feedback process regarding
crypto activities. The FDIC agreed to implement these
recommendations by January 2024, but more than a year later,
the FDIC did not implement anything and still has not
implemented anything that adequately addresses these problems.
We agree regulators should assess financial risks, but they
should not use political bias to stifle a legal industry behind
closed doors. As a result, Coinbase and our partner filed
multiple Freedom of Information Act (FOIA) requests to the FDIC
to uncover the extent of their actions. After the FDIC
stonewalled us at every turn, we sued in the Federal District
Court in order to obtain the information.
The court ordered the FDIC to release redacted versions of
their pause letters. The FDIC's initial production, however,
was threadbare, but, just yesterday, as Mr. Campbell indicated,
and at the direction of FDIC Acting Chairman Hill, the FDIC
finally released a more complete set of 175 documents, totaling
over 700 pages that revealed an even more disturbing pattern
and practice to debank our sector than previously known.
Over and over again, the FDIC bludgeoned the banks with an
onslaught of examinations and questions until the banks
relented under the pressure. For example, the documents show
that regulators forced banks to deny stablecoin issuers bank
accounts for the reserves. That meant stablecoin issuers had
fewer places to turn for banking services causing increased
concentration risk and fewer opportunities for community banks
and others to grow deposits.
In this very room, policymakers have raised concerns that
crypto could pose a risk to the traditional financial system,
but because of the FDIC's actions, here the opposite happened.
The traditional financial system posed a risk to crypto and
critically its customers.
During the same period in which the FDIC was telling banks
to halt activity, the FDIC was also publicly denying they were
discouraging banks from offering services to lawful businesses,
including crypto. For example, in a January 2023 joint
statement, the FDIC, along with other banking regulators,
explicitly stated that banking organizations are neither
prohibited nor discouraged from providing banking services to
customers of any specific class or type, as permitted by law or
regulation.
Regardless of one's views on crypto, everyone should be
alarmed that regulators were saying one thing publicly while
instructing banks to do something very different behind closed
doors.
Coinbase's FOIA litigation has exposed this lack of
transparency, regulatory bias, and abuse of power. Bringing
these issues into public view has significant implications not
just for crypto, but for broader regulatory fairness.
I remain optimistic about crypto's future in America
despite the abuse I have outlined today. We can start by
enabling banks to provide crypto services to all lawful
businesses. To that end, Coinbase sent a letter to the banking
regulators earlier this week urging them to take specific
actions like withdrawing the Office of the Comptroller of the
Currency (OCC) Interpretive Letter 1179 and enabling innovative
technology solutions.
In addition to opening up banking services to the crypto
industry, I would urge Congress to pass legislation that
creates regulatory, certainly for crypto. I applaud the work of
Chairman Hill and other members of this committee for their
work on Financial Innovation Technology for the 21st Century
Act (FIT21) and stablecoin legislation, and we are eager to
engage on similar legislation this year.
Thank you, and I look forward to answering your questions.
[The prepared statement of Mr. Grewal follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Meuser. Thank you.
Mr. Thiel, you are now recognized for 5 minutes.
STATEMENT OF FRED THIEL, CHAIRMAN OF THE BOARD OF DIRECTORS AND
CHIEF EXECUTIVE OFFICER, MARA
Mr. Thiel. Chairman Meuser, Ranking Member Green, and
distinguished members of the committee, thank you for the
opportunity to testify on the critical issue of debanking of
the digital asset ecosystem. I am honored today to be here to
discuss the events that took place under Operation Choke Point
2.0 and the effects it had on the digital asset industry at
large.
My name is Fred Thiel, and I serve as CEO of MARA, a
leading company in the digital asset industry and the largest
publicly traded Bitcoin miner. MARA is also the second largest
corporate holder of Bitcoin. I am proud to say that MARA is
dedicated to fostering U.S. economic growth, advancing domestic
energy innovation, and bolstering U.S. national security
through blockchain technology.
From revitalizing renewable energy assets and strengthening
our power grids to mitigating methane emissions on oil fields
and driving efficiency gains in high-performance computing
applications like AI, MARA is fueling progress at the
intersection of technology and industry. The employees that put
on the MARA hat and go to work every day are a team comprised
of veterans, blue-collar workers, technology and finance
experts who contribute significantly to our local and national
economies.
MARA invested nearly $2 billion into the U.S. economy in
2024, including $215 million investment in Nebraska, $229
million investment in Ohio, and over $1 billion investment in
the State of Texas.
As CEO of MARA, I have had the privilege of being at the
forefront of the digital asset industry's evolution over the
last 5 years, witnessing firsthand its growth and impact on the
future of finance.
The United States is not a stranger to the disruption and
change that accompanies innovation. Our Nation has not only
witnessed but led the development of transformative
technologies like the internet, personal computers, and now
artificial intelligence. Blockchain technology and digital
assets represent yet another frontier of auspicious change that
is already revolutionizing our daily lives.
Yet, despite the positive impact and promise of this
technology, it is undeniable that the digital asset industry
has been treated differently, singled out, and subjected to
unprecedented actions that threaten to stifle America's
leadership and innovation. Such discriminatory practices
contradict our Nation's ethos of technological advancement and
pose significant risks to our economic competitiveness and
national security.
Today I am here to shed light on how these opaque, behind-
the-scenes financial exclusion practices often occur without
public scrutiny or legislative oversight, and if left
unchecked, jeopardize the ability of legitimate businesses to
operate within the United States, driving capital offshore.
Clear, fair regulation must ensure that all companies that
follow the law and play by the rules are treated fairly and
have equal access to basic financial services. It is crucial
that we address these challenges to ensure America maintains
its competitive edge in this rapidly evolving sector.
In 2023 and 2024, companies in the digital asset sector
have experienced a disturbing pattern of financial exclusion by
major banks, payment processors, and financial service
providers. These actions taken without clear justification
include the closure of commercial banking services, denial of
lending and credit facilities, and exclusion from payment
platforms. Discriminatory banking and financial policies harm
the digital asset ecosystem and broader economic interests. By
restricting access to essential services, banks and payment
processors are determining which industries can thrive in the
United States. These restrictions also undermine energy and
national security goals as digital asset mining and blockchain
technology are key to optimizing the energy grids and
bolstering security.
Financial barriers slow investment in these critical
solutions. Additionally, these practices violate free market
principles allowing financial institutions to arbitrarily
exclude legitimate industries, stifling competition, and
setting a dangerous precedent for financial censorship.
To address these systematic abuses, I urge Congress to take
several actions: First, ensure equal access to financial
services by prohibiting blanket bans on digital asset
companies, requiring individual risk assessments instead;
second, increase regulatory transparency by mandating that
financial institutions disclose reasons for account closures or
denials, ensuring due process; third, promote a competitive
financial ecosystem through clear regulations that allow
digital asset businesses to operate without fear of arbitrary
exclusion; finally, protect innovation by recognizing
Blockchain's role in energy infrastructure and aligning
financial policies with national security goals.
Some financial institutions have become increasingly
welcome of cryptocurrencies and blockchain technology,
recognizing the growing and strategic importance of digital
assets. Some have established dedicated teams and divisions
devoted to integrating this technology, expanding access to
cryptocurrencies and investing in its future. I want to thank
those who have partnered with our industry and have vocally
advocated for clear frameworks that will provide necessary
certainty to allow America to continue to innovate and lead the
world on digital assets.
In conclusion, the financial debanking of digital asset
ecosystems represents an existential threat to American
leadership in technology, economic competitiveness, and
national security. Without immediate action, legitimate
businesses will continue to face discrimination, forcing
innovation offshore, and reducing U.S. influence in a critical
sector. I appreciate the committee's attention to this matter
and look forward to answering any questions. Thank you.
[The prepared statement of Mr. Fred Thiel follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Meuser. Thank you, Mr. Thiel.
Ms. Olesiuk, you are now recognized for 5 minutes.
STATEMENT OF SHAYNA OLESIUK, DIRECTOR OF BANKING POLICY, BETTER
MARKETS
Ms. Olesiuk. Good afternoon, Chairman Hill, Chairman
Meuser, Ranking Member Waters, and Ranking Member Green, and
members of the subcommittee. Thank you for the invitation to
testify today. My name is Shayna Olesiuk, and I am the Director
of Banking Policy at Better Markets. Better Markets is a
nonprofit, nonpartisan, independent organization founded in the
wake of the 2008 financial crisis to promote the public
interest in the financial markets, support financial reforms of
Wall Street, and make the financial system work for all
Americans again.
I have more than 25 years of experience in the financial
services and banking regulatory area. I have led and
participated in projects related to banking regulatory policy,
systemic risk, the provision of banking services and products
to all Americans, including underserved consumers and
communities.
The topic of today's hearing is of vital importance,
whether or not regulators will conduct unbiased, risk-based
analysis regardless of the source of risk to the banking
system. What is really at stake is protecting our financial
system and main street Americans from the risks, costs, and
consequences of incredibly volatile and often flagrantly
illegal conduct and criminal activity. Many crypto companies
have put themselves in the crosshairs by choosing to engage in
or enable these activities.
If the crypto industry had followed the law, like almost
every other financial firm in the United States, then it would
not be crosswise with the regulators who are mandated to
enforce the law and protect consumers, investors, and financial
stability. This is also an issue of fairness to the other
financial firms in the United States who are following the law.
Crypto should not be given an unfair advantage over its
competitors with a different set of rules.
The explosive growth of crypto in recent years has
massively endangered the financial system in ways we have never
seen. Banks and other financial firms have become involved with
crypto firms, and several have experienced devastating
failures. These failures harmed the banking system and bank
customers and came with an enormous price tag of $40 billion in
direct costs--that is billion with a ``B''--and threatened
financial stability. Furthermore, main street Americans are
being misled and defrauded into believing that crypto is
ensured by the FDIC, which is a completely false claim.
Financial experts, regulators, and law enforcement all
recognize the very real risk that crypto presents to the
banking industry and financial stability. For instance, the
Federal Bureau of Investigations (FBI) received more than
69,000 reports of financial fraud involving crypto in the year
2023 alone, with estimated losses to real people of $5.6
billion. Even hedge fund titan Elliott Management has sounded
an unprecedented alarm about the speculative frenzy in the
crypto markets.
None of this is to dispute that access to the banking
services is an important goal to support the functioning of our
economy and benefit all Americans. Regulators have two
fundamental duties in this area: First, regulators have a duty
to ensure that banks comply with applicable laws; second,
regulators must promote safe and sound banking practices and
must take corrective action when banks engage in unsafe and
unsound practices.
The bottom line here is that regulators and banks must act
in the best interest of the public and main street Americans.
The facts and evidence show that standing with crypto often
means standing with those who engage in high-risk, if not
illegal and criminal activities, with a highly volatile product
that has no legitimate social use and could endanger the entire
financial system and ultimately the economy. These are very
real risks.
Having so recently suffered from the catastrophic 2008
financial crash, enabled and fueled by unregulated novel and
innovative financial products, the American people deserve that
protection. Thank you, and I look forward to your questions.
[The prepared statement of Ms. Olesiuk follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Meuser. Thank you.
Now, I would now like to explain how Ranking Member Green
and I have agreed to establish the question order. We will
follow the rules of the committee alternating between one
Republican and one Democrat member for 5 minutes each, with the
exception that Mr. Green will be the last Democrat member to
speak or to ask questions immediately before the last
Republican member.
We will now turn to member questions. The chair, myself--I
will recognize myself for 5 minutes.
Mr. Campbell, so you witnessed firsthand how Operation
Choke Point was orchestrated in the past. Can you give us some
details, walk us through the specific directives or tactics
regulators used back then, which pressured banks into severing
ties with legally operating businesses, and how those tactics
have sadly been recognized in the more recent past related to
crypto?
Mr. Campbell. Yes, sir. Of course. I would say, when you
are in a risk officer position at a bank, as I have been in the
past, and you are communicating with regulators, you are
getting fundamentally several layers of guidance from them. One
is whatever the written findings are that they eventually come
to the conclusion of examination or something of that sort, but
through the course of that and prior to the written findings is
a lot of verbal guidance.
When you were attempting to engage in certain types of
crypto activities, the kinds of statements you would get, which
you will see banking regulators making to this day in public,
in fact, Jerome Powell, Chairman of the Federal Reserve, said
similar things recently is: While you are not legally
prohibited from doing these things, we find them to be
extremely risky, and there is no particularized analysis of why
they are risky, right.
If you were to say, well, you have told me giving a deposit
account to a crypto company is risky because maybe these
deposits will flee quickly, and you say something like, okay, I
hear you, I will segment those deposits and back them only with
T-bills, the safest, most liquid asset known to man in the
world, essentially unlevered, no long-dated lending. They say,
well, we have reputational concerns about you banking crypto
clients. We are still not sure. Maybe we will answer you on
that, maybe we do not, but we still find it risky. You
understand that to mean, no, right. I am a parent. I have two
kids. They understand when they ask me if they want to do
something or not and I say, well, you can do what you want, but
I would not if I were you. They know that really means, no. One
thing they do is this.
The other thing they do which, Paul, you had referenced
this earlier that the pause letters and sort that recently came
out from the FDIC indicate, is they will just ask you questions
endlessly and tell you that you need to get permission from the
regulator to engage in these activities and hopefully they will
never stop asking questions, right. This could be 2 years
straight of questions with no end point, no finish line, no
clear articulation as to what they are trying to learn. At some
point, it just becomes a repetitive cycle, and it is clear the
answer is no.
The final point is, as I said with the regulatory guidance,
they will start punishing you in other ways. They will look at
your business and start tweaking your CAMELS ratings, they will
start raising the operational risk of your bank, they will
start downgrading your management judgment because you have
persisted in offering these sorts of concerns. They will even
go so far, in many cases, as to pressure banks providing you
with services, if you are a small bank, to stop doing so.
For instance, there have been cases of smaller banks having
their corresponding banking relationships terminated so they
can no longer send international wires or things of that sort
where regulators went and pressured other people serving them.
Chairman Meuser. All this is quite damaging.
Mr. Campbell. Those are extremely damaging, and I would
tell you; these efforts make it uneconomic to serve the crypto
industry. While there is no legal ban, there is a functional
ban for a for-profit institute approaching this space----
Chairman Meuser. All right. Thank you.
Mr. Campbell. Thank you.
Chairman Meuser. Mr. Grewal, thank you. The significance of
these pause letters, can you kind of summarize that for us?
Mr. Grewal. Yes, sir. What the pause letters show, Chairman
Meuser, is that over and over again, banks were subject not to
regulation by examination, but regulation by exhaustion. You
had question after question raised if even a hint of interest
was shared that the bank wanted to enter into a basic service
for its customers involving crypto or to facilitate basic
crypto transactions.
What makes the pause letters particularly troubling is that
all of this activity, all of this exhaustion and re-and re-
examination took place against a backdrop of the FDIC telling
the public something very different. This comes in the form of
the response to the inspector general report that I have
referenced in my opening statement.
It was in that response that the FDIC suggested that banks
had every right to participate in crypto activity. We know that
was false, and we know that they had no intention of ever
permitting that activity to take place. It is that practice of
saying one thing in public and doing something very different
in private that I think is particularly concerning, and it is
something that this committee ought to pay attention to.
Chairman Meuser. Right. Thank you.
Mr. Thiel, in spite of the actions taken by the FDIC, which
were egregious and somewhat astonishing, the damage caused, are
there solutions, and are those solutions quite attainable?
My time has expired, so I would like to hear that answer
throughout the course of this testimony. Thank you.
I now yield to the gentlewoman from California, Ms. Waters,
ranking member of the full committee, for 5 minutes for
questions.
Chairwoman Waters. Thank you very much, Mr. Chairman.
While I would like to really engage on this question of
debanking, having worked on stablecoins and understand what is
going on, both with the big banks of America and with crypto,
let me just say, the big banks are not interested in opening up
banks to the small people, to poor people, and they have
debanked large segments of the communities of America already.
With crypto, they are divided. Crypto talks about, some of
them want regulations, others do not want regulations, so I am
not going to spend my time talking about them. This fight is
going to go on for quite some time. We must, however,
acknowledge the takeover of the Federal payment system by an
unelected billionaire donor that took place last week.
Despite resistance from senior officials, Co-President Musk
seized access to Treasury payment systems, including the
sensitive, personal data of virtually every American. I have
heard from hundreds of people who are worried about Elon Musk
having access to their sensitive data, including the impact on
Social Security payments and Medicare benefits. What are the
implications of this illegal takeover for the American people?
While we have been confronted with chaos in the past few
days, and we are trying to figure out what is going to happen
to those employees, those Federal Government employees have
been told that they are going to be furloughed. They do not
know what is going to happen to them. I was absolutely shocked
that when the President of the United States said to all of the
departments that supposedly have people that are working in
diversity, equity, and inclusion, out by 5 o'clock. It sounded
to me like some of those times that we witnessed in the past
with communities that told people to be out by sundown, et
cetera, et cetera.
We can talk about what is going on with debanking all that
we want, but America is in trouble, deep trouble. It is not
simply about what is happening here with the leadership of this
government in America. They are all over the country. I just
discovered that Elon Musk is threatening the President of South
Africa. We worked very hard dealing with South Africa and
getting rid of the kind of racism that was involved
historically. Now they are being threatened because Elon Musk
is going to open up a battery factory in South Africa. He wants
them to get rid of the 30 percent participation that was fought
for so that Black South Africans could participate.
Trump is saying to the South African Government, if you do
not get rid of your diversity, equity, and inclusion, we are
going to cutoff all of the support through the U.S. Agency for
International Development (USAID). USAID has been shut down,
and it was shut down by the Co-President Elon Musk. Guess why?
He is under investigation by the USAID.
While we talk about debanking, that is an issue, and I am
going to tell you, the banks and crypto are going to fight it
out. I guess the biggest billionaires will win, because that is
what it seems to be all about in this country these days, and
that is about billionaires and their power. Go on and talk
about it, but I am going to fight for the opportunity for the
average person in this country, for the little people to have
some kind of banking services. We have been screaming about
payday loans. We have been screaming about a lack of access for
people in poor communities. That is not a big issue anymore. It
is about whether the big banks and crypto are going to find a
way to get along.
You all carry on with this today, but I want you to know, I
am going to continue to pay attention to what the Co-President
is doing, what this President is doing, and the kind of rally
that we are seeing over at the Treasury Department just a day
ago, where everybody came together, thousands of people, to say
hands off our private information, hands off Social Security,
hands off what is happening with the tax revenue in this
country.
With that, I know you are glad. I yield back the balance of
my time.
Chairman Meuser. The gentlelady yields.
Without objection, I ask unanimous consent to enter into
the record the statement by the Department of Treasury about
what is actually happening within the payments system and the
level of security that has been assured by the Secretary of the
Treasury.
Without objection.
[The information referred to can be found in the appendix.]
Chairman Meuser. We now recognize the gentlewoman from
Missouri, Mrs. Wagner, who is also the Chair of the
Subcommittee on Capital Markets, and now recognized for 5
minutes.
Mrs. Wagner. I thank you, Mr. Chairman, and congratulations
on your new gavel.
I am going to try and turn us back to the topic of the day,
and I thank our witnesses for sharing the difficulties their
firms have had accessing routine banking services simply
because of their involvement in the digital asset ecosystem.
It is clear that under the previous administration, the
Biden Administration, digital asset firms were the victims of a
pressure campaign initiated by regulators, designed to cut them
off from our economy. Regulators should not be picking winners
and losers based on what industries enjoy, the political favor
of the sitting President. Individuals operating fully legal
businesses deserve their right to seek access to banking, and
banks must be free to make decisions about the customers they
serve without regulators pressuring them to toe the hostile
administration's line.
Mr. Thiel, has your bank ever stated whether their
prudential regulators told them that they should refrain from
providing services to digital asset firms?
Mr. Thiel. Representative Wagner, we banked with Signature
and when the FDIC shut them down and Flagstar took over the
accounts, none of the crypto accounts were allowed to be part
of those assets acquired, and we were forced to immediately
seek accounts with other banks. We were able to open an account
with another bank, deposited $70 million after going through
all the approval processes, and 6 days later, we were told we
have to shut down the accounts because our bank no longer will
bank crypto companies.
Mrs. Wagner. The answer is, yes?
Mr. Thiel. Yes.
Mrs. Wagner. What did they say?
Mr. Thiel. We were basically given a policy decision by the
bank that they would no longer service crypto companies,
period, and we were asked to withdraw our money in, I think it
was, 24 hours or 72 hours.
Mrs. Wagner. No explanation, just by fiat?
Mr. Thiel. Yes.
Mrs. Wagner. Wow.
Mr. Campbell, do you believe the treatment by the
prudential regulators related to digital assets differs from
the treatment of other lines of business transactions and
portfolios?
Mr. Campbell. I definitely do. There was actually a study
recently by the Alternative Investment Management Association
(AIMA) and John D'Agostino that I reference in my written
testimony, where they went and systematically surveyed asset
management firms, those who were traditional asset managers, so
call it the fidelities of the world and hedge funds and things
of that sort, and then those that served crypto.
Among the traditional asset managers, many of whom do
engage in highly risky strategies, and I say this as somebody
who has worked at a traditional asset manager myself, almost
none of them had problems accessing banking service, but among
the crypto segment, even those doing the most vanilla, most
boring, long-only sort of strategies, roughly two-thirds had
problems acquiring banking services.
Mrs. Wagner. Wow.
Mr. Campbell. There was a large disparity.
Mrs. Wagner. I would like you to get me that study, and we
will submit it for the record. Thank you.
[The information referred to was not received prior to
printing.]
Mr. Campbell, do you believe that regulators are using
debanking as a tool to advance their anti-digital asset agenda?
Mr. Campbell. I do, and you see this in many of the FDIC
pause letters where they just say crypto is bad, and you ask
them, why do you think crypto is bad? They say, because it is
risky. You ask them, why do you think it is risky? They say,
because it is bad, right. It is circular reasoning, and they
never really give any fundamental justification for why it
might be risky for, say, Mr. Thiel's company to make payroll,
right, or pay their rent. That is sort of what gives lie to me
of the behaviors, the inability to provide even basically
riskless banking services.
Mrs. Wagner. Okay. We have also seen overzealous regulation
by enforcement--and that is what I call it, regulation by
enforcement--by the SEC. Mr. Grewal, how has the regulation by
enforcement approach hurt U.S. leadership in technology and
financial innovation?
Mr. Grewal. Congresswoman, respectfully, I think another
way to ask that question maybe, how has it not hurt us to be
sued by the SEC after years of asking, indeed begging, for
simple rules from the Securities and Exchange Commission----
Mrs. Wagner. I know.
Mr. Grewal [continuing]. that could be followed and allow
companies like ours to accept their invitation to come in and
register.
Mrs. Wagner. Would you clarify a little bit more, can you
describe Coinbase's efforts to gain clarity from these
regulators and financial institutions?
Mr. Grewal. Yes. Yes, ma'am. We have formally requested
rules by petition. That petition was denied by the SEC. That
denial was found to be arbitrary, capricious, and the reasoning
vacuous by the U.S. Court of Appeals. We have attempted to meet
with the SEC on dozens and dozens of occasions with our own
ideas for how regulation might work, and what standards might
apply to the industry as a whole. Over and over again, we were
thwarted. We were told, thank you and go away.
Mrs. Wagner. Thank you. I am sorry. We are going to get
this straightened out.
My time has expired. Mr. Chairman, I yield.
Chairman Meuser. The gentlelady yields.
The chair now recognizes the gentlewoman from Michigan, Ms.
Tlaib, for 5 minutes.
Ms. Tlaib. Thank you, Mr. Chair.
Ms. Olesiuk, what would you say to a family member, that a
friend that came up to you super excited to invest in crypto or
digital assets? I think we all had that one cousin that called.
What would you say to them before they invested?
Ms. Olesiuk. Thank you for the question, Congresswoman. I
think that Americans are skeptical of crypto, and rightly so.
Americans have seen the illegal activity, arrests and just
dangerous activity. Looking at a Consumer News and Business
Channel (CNBC) poll, only 8 percent of Americans have a
positive view of crypto. Looking at the Federal Reserve data,
only 7 percent of Americans own crypto, and only 1 percent use
it to buy things, so I would encourage them to have some
caution and to--encourage them to go to a traditional bank
where----
Ms. Tlaib. Yes. I raise the question because there are
Detroit residents who have lost thousands of dollars of
cryptocurrency in my district. I actually have--one of my
Livonia residents right outside of the city recently contacted
our office where she had lost $400,000 through a cryptocurrency
scam, and it was just heartbreaking. I just feel like we
cannot--we cannot ignore that.
Today's hearing, of course, is supposed to be about
debanking faced by the crypto industry, but if we really were
concerned about financial inclusion, we know that many of the
most vulnerable among us, Black, Brown, low-income, lack access
to basic financial services. I know across the country we have
charities, individuals, and businesses experienced trouble
opening a bank, maintaining their account, sending or receiving
payments because of religious or ethnic national affiliations.
I say this because, as one of the only few Muslim Americans
serving in Congress, I was surprised to see that one of the
polls found--one of these polls found that more than one out of
four Muslim Americans reported challenges while banking.
Someone said in my district once, it is called banking while
Muslim, right.
Ms. Olesiuk, how can lawmakers be able to combat such
discriminatory debanking practices?
Ms. Olesiuk. I think I would answer with two things. First,
to strengthen oversight and increase accountability to ensure
that banks are following the appropriate laws and regulations
that--anti-discrimination laws that protect all Americans.
Secondly, under the former Consumer Financial Protection Bureau
(CFPB), Chair, Director, I think some good work was being done
to explore alternative methodologies for people without credit
to build credit.
Ms. Tlaib. Yes. I think this is more because they are
Muslim.
Now, I would like to discuss facts motivating today's
hearing, and Coinbase's--and it is a consultant's complaint
against the FDIC. They claim, they quote, starting--you are
probably familiar with this--Starting in 2022, Federal
financial regulators have taken concerted steps designed to
cripple the digital asset industry.
What is interesting about this timeline--and maybe, Ranking
Member, you would find this interesting--what actually happened
around 2022? Folks are forgetting. They were going to play
dumb, but we were not. We know what happened. Investors lost $2
trillion during what we call, what, crypto winter, and a whole
host of crypto and digital asset companies went belly up,
including FTX and Celsius.
In early 2023, we saw Silicon Valley Bank, Signature Bank
and Silvergate fail with crypto playing a huge role in that.
How would you characterize the crypto industry's access to
banking services before crypto at companies and regional
banking failures around 2022?
Ms. Olesiuk. I think that the--there was caution and the
regulators recognizing the risk that these companies----
Ms. Tlaib. They messed up, right? They messed up. They
failed. That is $2 trillion.
Ms. Olesiuk. True.
Ms. Tlaib. Yes, but they act like, poof, we were just like
picking on them.
Ms. Olesiuk. True. I----
Ms. Tlaib. We were picking on them. They messed up.
Ms. Olesiuk. The regulators and banking regulators
recognized the risk that these companies presented and then we
saw what happened in 2023.
Ms. Tlaib. Yes. Really quick, I know according to the
FDIC's inspector general reported in early 2023 that 136 FDIC-
insured banks have ongoing or planned digital asset activities.
It sounds like crypto industry was doing okay in term of
access. Then the industry tanked, banks got spooked, and
regulators took a closer look.
Would you agree with this rough timeline and description? I
think it is important for American people to understand this,
as we sit here. What happened before all of a sudden you guys
all got the knock on the door? Something was happening, and so,
I think it is really important. Again, it is the regulators got
tougher after multiple bankruptcies and related bank failures.
That is a fact, and it is part of the, again, I think the facts
that nobody is going to bring up. You fail; you are hurting
American people. We are going to have oversight, and we are
going to make sure it does not happen again. Thank you.
Chairman Meuser. The gentlelady yields.
Mr. Loudermilk of Georgia is now recognized for 5 minutes
for his questions.
Mr. Loudermilk. Thank you, Mr. Chairman.
I thank the panel for being here. It is a very important
topic, and it is something that has to be addressed. With the
original Choke Point, Federal regulators carried out a
coordinated campaign of harassment against law-abiding
businesses based on thinly defined reputational and regulatory
risk. That resulted in the systemic debanking of thousands of
American businesses, legal businesses, and I would argue
constitutionally protected businesses, like gun dealers, pawn
shops, and installment lenders. While the first Trump
Administration ended this abuse of regulatory power, the Biden
Administration regulators wasted no time in bringing it back
with a new target, innovators and entrepreneurs.
My first question, Mr. Campbell. To carry out their
politically motivated campaign against American innovation,
Biden regulators use something called supervisory non-objection
letters. Can you briefly explain what these letters are and
what they meant for banks?
Mr. Campbell. Yes, of course. It basically requires a bank
to go to a regulator and get non-objection, that is to say they
do not tell you no, to be allowed to engage in any sort of
banking activity.
Mr. Loudermilk. In your opinion, do these letters change
the law as enacted by Congress?
Mr. Campbell. I think when they are abused there is that
potential, yes. In fact, to the previous representative's
point, we are somewhat twisted around here in that the
regulators took the stance of, because some actors in a space
are bad, we will therefore debank all of the actors in a space.
Which you will notice is the exact sort of the line of thinking
that has been promulgated to justify the actions of the FDIC
with regard to Choke Point, but also, was the rationale behind
red lining and the denial of banking services to minorities in
the past. I would suggest it is a governance issue, yes, sir.
Mr. Loudermilk. All right. Thank you for that.
The Trump Administration regulators, particularly the OCC
also used supervisory interpretive letters during his first
term. What are the main differences between those interpretive
letters and the supervisory non-objection letters issued under
the Biden Administration?
Mr. Campbell. Interpretive letters are attempting to parse
through the law and give people a path to either engage in
actions or a rationale not to engage in those actions,
hopefully well-founded. When they are made public, I think they
are very valuable, because then everybody is playing by the
same rule set. The non-objection letters were particularized,
individual, and private. Exactly as Mr. Grewal said earlier,
there is no way to know what each individual bank is being
told, and it allows a regulator to say one thing publicly and
do something else privately, or just as bad, favor some banks
over others.
Mr. Loudermilk. I guess the title of the letters is
definitive interpretive versus non-objection al, okay. Thank
you for that.
Mr. Grewal, did the Biden Administration specifically issue
the supervisory non-objection letters to target digital assets
that were previously allowed by the Trump Administration?
Mr. Grewal. Yes.
Mr. Loudermilk. If banks must ask regulators for explicit
permission to bank crypto firms, how does this affect their
willingness to bank those firms?
Mr. Grewal. It discourages those banks from even trying in
the first place, Congressman. The reason is that having to
submit those requests under a well-defined framework with a
deadline is one thing, but to simply submit and wait for an
answer whenever and according to whatever standard the
regulator deems fit, that is something else entirely, and that
is something that ultimately discourages banks from even
participating in the first place.
Mr. Loudermilk. Sir, are you aware of any banks that went
through the non-objection process, and if so, how did those
banks fair?
Mr. Grewal. I am aware of my examples of banks who went
through that process as a result of the documents that we
secured through our FOIA suit against the FDIC. What we saw in
the documents that were produced just yesterday is that in case
after case when the banks step forward and raise their hands
and ask for permission to offer basic services, they were
either ignored or they were given detailed examination and re-
examination and re-, re-examination until they simply gave up.
Mr. Loudermilk. There was a time, and I believe that the
administrative state was established to work with industry to
provide guidance, create some consumer protection. I remember
when FDIC was viewed as a partner with banks, it would help the
banks to operate in a functional. This sounds to me like this
is an adversarial relationship instead of a partnership. Would
you agree with that?
Mr. Grewal. I would. If there was an offer made, it was an
offer that the banks were not allowed to refuse.
Mr. Loudermilk. Thank you. I yield back.
Chairman Meuser. The gentleman yields.
The chair now recognizes the gentlelady from Georgia, Ms.
Williams, for 5 minutes for her questions.
Ms. Williams of Georgia. Thank you, Chairman Meuser and
Ranking Member Green.
Now, colleagues, I am going to need a little help from you
all in this first portion.
Raise your hand if you have been overloaded this week with
urgent calls from constituents worried about how President
Biden treated crypto firms.
Okay. I did not get any calls about this this week. No.
Raise your hand if you have gotten urgent calls from your
constituents about an unelected billionaire and his overreach
in the agencies that this committee oversees and harming those
most marginalized.
My phones have been ringing off the hook.
Exactly what I thought. My colleagues are saying the same
thing.
You all, this is our first subcommittee hearing, and it is
going to be about fake oversight over the crypto policy of
former President Biden. He is not even in power anymore.
Are we really going to ignore all of our constituents who
have reached out with their frustrations, confusion, and
concerns about Elon Musk dismantling our Federal Government?
Getting answers for our constituents is what this subcommittee
should be doing.
Now, look, I fully understand the importance of the crypto
industry. The digital asset market is rapidly growing
throughout my district, especially in my home city of Atlanta.
I get it, you all. I want my people to thrive. The Financial
Services Committee should have serious bipartisan conversations
about crypto policy but saying that President Biden's policies
discriminated against crypto firms is not a serious take. It is
a distraction from the mess that my colleagues--my Republican
colleagues are creating here in D.C.
I have a better idea. If my Republican colleagues want to
talk about discrimination in the banking system, let us have a
real conversation about that and I will start.
Ms. Olesiuk, the city of Atlanta has one of the largest
racial wealth gaps in the country. Did that just emerge over
the last 4 years because of President Biden's so-called
discrimination against cryptocurrency?
Ms. Olesiuk. Thank you for the question, Congresswoman.
No, the wealth gap has actually been growing for years and
decades now and has actually gotten worse, not better.
Ms. Williams of Georgia. Exactly. I did not think so.
Ms. Olesiuk, let me try another theory. Did the racial
wealth gap emerge in part because of the long legacy of
discrimination against Black and Brown Americans in the banking
system?
Ms. Olesiuk. Yes, I believe that has contributed. Black and
Brown Americans do not feel comfortable going to traditional
banks, often. They feel discriminated against so, yes, I
believe that is a major contributor.
Ms. Williams of Georgia. Now we are getting somewhere.
Many Black and Brown Americans have been historically
turned away from the traditional banking system simply because
of the color of their skin. Many Black entrepreneurs still have
cash-only businesses.
Ms. Olesiuk, what can regulators do to address the real
needs of unbanked individuals like so many throughout my
district in Atlanta?
Ms. Olesiuk. I think this is a key question, and I have a
couple of suggestions.
First of all, there are what are called Minority Depository
Institutions, or MDIs. These are banks that are specifically
focused on serving minority communities. There have been many
studies that show that Black and Brown people who go into a
bank where they see people that they feel comfortable with,
they often--loan approvals are better, and they have a better
experience at a bank. So, encouraging more of the MDIs to open.
Unfortunately, they are on a downward trend now, so that is
something that we need to do.
Also, expand diversity in public and private leadership,
both at banks and at the agencies, to ensure that the policies
are serving everyone.
Ms. Williams of Georgia. While my Republican colleagues
want to discuss getting bank accounts for cryptocurrency, I
want fair policies. I want it across the board, but I wonder
more about getting bank accounts for the people in my district
who remain unbanked. I was once unbanked myself. Unfortunately,
recent data shows that 11 percent of Black American households
are still unbanked, compared to 2 percent of White households.
Ms. Olesiuk, will attacking and getting rid of diversity,
equity, and inclusion programs throughout the government help
close the racial wealth gap or widen this divide?
Ms. Olesiuk. Oh, it will absolutely widen the divide. It is
not going to help at all.
Ms. Williams of Georgia. Thank you so much for this
conversation today.
I hope that we can continue to make sure that, while we are
not only looking out to make sure that cryptocurrency firms and
everyone who is seeking to thrive in this industry have access
to bank accounts, that we are also looking out for those people
that we were sent here to serve, like the people in my district
in Atlanta.
It is clear that we have a lot of work to do in this
Congress, but if we are going to do it, we have to talk about
the real problems facing real people.
Thank you, Mr. Chairman, and I yield back.
Chairman Meuser. The gentlelady yields.
The chair now recognizes Mr. Garbarino from New York for 5
minutes.
Mr. Garbarino. Thank you, Mr. Chairman.
Thank you to the witnesses, also, for being here today.
One story that we have consistently heard from opponents of
digital assets is how it provides a significant source of
financing for terrorist groups and other illicit activities.
However, the evidence tells us a different story. According
to a recent report, illicit activity is down, with analysts
estimating that crypto transaction volume associated with
illicit activity is only at 0.34 percent.
Mr. Grewal, how do companies like Coinbase approach Know
Your Customer and anti-money-laundering requirements with
financial institutions?
Mr. Grewal. Thank you for the question, Congressman.
Coinbase is licensed in 45 States as a money transmitter,
and also the New York BitLicense also applies to our firm. We
are a registered money-services business with Financial Crimes
Enforcement Network (FinCEN) under the Department of Treasury.
We also have broker-dealer licenses all over the Federal
Government, as well, at the SEC, and we are also licensed at
the Commodities Futures Trading Commission (CFTC).
With respect to your question, we take our obligations to
follow the Bank Secrecy Act (BSA) and all Know Your Customer
(KYC) and anti-money laundering (AML) rules extremely
seriously. We have hundreds of employees and thousands of
contractors who work on these issues each and every day.
To the extent you or any other member have questions about
the strength of our commitment to law enforcement and
enforcement of the Bank Secrecy Act, I encourage you to speak
with the men and women of law enforcement at the FBI, the Drug
Enforcement Administration (DEA), and across this country in
State and local departments. I think they will tell you that
their best days are when they are investigating crime that
involves cryptocurrency as opposed to cash or other forms of
payment that are far more prevalent in this country. They
prefer to work with Coinbase.
Mr. Garbarino. Thank you very much.
Mr. Thiel, prior to being debanked, had you provided all
necessary information to your bank in order for them to be
compliant with KYC and AML standards?
Mr. Thiel. Yes, sir.
Mr. Garbarino. Had your previous banking partner raised any
KYC or AML concerns with you during that relationship?
Mr. Thiel. None, sir.
Mr. Garbarino. Since being debanked, do the institutions
you attempt to receive service from cite KYC or AML risks
associated with your company?
Mr. Thiel. No, sir, Congressman. They essentially just say
they have a policy against crypto. In some cases, the KYC
process can take years, and then they simply say,
``Unfortunately, our committee will not allow a crypto
customer.''
Mr. Garbarino. That is because of regulators?
Mr. Thiel. Correct, sir.
Mr. Garbarino. Yes. You have had no concerns with KYC and
AML. Banks do not bring that up to you. They just say they
cannot do business with crypto.
Mr. Thiel. Sir, we are a fully SEC-regulated company,
audited financials. They do not raise any issues like that.
Mr. Garbarino. The regulators are the ones who are leaving
you where you are right now?
Mr. Thiel. We believe so.
Mr. Garbarino. Yes. Thank you, and Mr. Campbell, you are
familiar with KYC and AML requirements, correct?
Mr. Campbell. Yes, sir.
Mr. Garbarino. Can you describe some of the issues that are
considered when institutions are working through these
requirements?
Mr. Campbell. Yes. You are looking at the legal identity of
the customers, the validity of their business activity, the
source of funds, the expected activities over time, what you
might think of as deviations from that, compliance with law,
and so on.
If I was sitting at a bank and evaluating, say, Coinbase, I
would be looking at things like, are they licensed, what is
their staffing, what are their policies, where do they get
their money? You are doing a comprehensive analysis of the
behavior of a client.
Mr. Garbarino. Yes, it is a very deep dive, and you feel
comfortable after doing it.
Mr. Campbell. Hopefully you do.
Mr. Garbarino. You would want to, at least.
Mr. Campbell. Yes. Look--and when you do not, usually you
should have found something particular, like, oh, this owner is
on an Office of Foreign Assets Control (OFAC) sanctions list,
or, oh, they appear to be laundering money for X, Y, Z reasons.
It is not really supposed to be about, for lack of a better
word, vibes.
Mr. Garbarino. Yes. I appreciate that and I appreciate all
the witnesses with your answers here. It is obvious that the
regulators are--it seems that they are the real reason that you
are all here today testifying and not the banks. We have to get
that under control. That is our job here at Congress.
I appreciate you all being here, and I appreciate the
chairman for having this hearing, and I yield back.
Chairman Meuser. The gentleman yields.
Mr. Liccardo of California is now recognized for 5 minutes.
Mr. Liccardo. Thank you, Mr. Chair.
Thank you to all the witnesses for your statements.
I appreciate my colleague Congresswoman Williams'
frustration with the focus of the subcommittee on a historic
analysis of regulation, which--I think I might agree with many
of the assertions made that in some cases may have been an
overreach. In other cases, I do not think so, but regardless,
his administration is no longer in office. I would much rather
focus on a forward-looking approach of what we can do to make
things better. I think debanking and access to banking services
is a serious concern.
I hope, Mr. Chairman, that all of us will agree that we
need a strong Consumer Financial Protection Bureau to ensure
that access to banking services is widely available, in
addition to addressing concerns about banking regulators and
its impact on debanking. We have about 5.6 million low-income
households that critically need access to banking services and
are not getting them, so I hope we can be more forward-looking
going forward.
On that note, I would like to consider the larger questions
that Mr. Campbell raised about banking regulation generally. I
thought those were interesting, and I want to pose the question
to Ms.--forgive me--Olesiuk?
Ms. Olesiuk. Yes.
Mr. Liccardo. Thank you. Thank you for your patience with
my pronunciation.
I know you have raised obvious concerns about regulation of
banks in the context of a digital asset that may have, for
example, high volatility.
Mr. Campbell recommends, though, as we are thinking about
banking regulation generally, that regulators, going forward,
approach regulation in a way that is--and I am going to
summarize here, not perfectly, but--first, that the regulation
be written, not oral; that it be public, not secret; that it be
explanatory of the rationale used to reach the decision; and
there be some, for lack of better term, subject to appeal by a
third entity.
I am just curious about, in your view of banking
regulation, does that make sense, as we think about how we can
do better going forward?
Ms. Olesiuk. Thank you for the question, Congressman.
I actually agree with a lot of those suggestions.
I think we need to start with the perspective that
regulators must take a risk-based approach to this issue.
Regardless of the industry, crypto or otherwise, regulators
must look at what risk that is presenting to an individual bank
or to the banking system in general, looking through the lens
of financial stability.
With regard to the solutions and a way forward--and I
describe this more in my written testimony--I have two main
suggestions. First, clarity on rules and expectations for
banks. I think that will set a level playing field for everyone
involved; secondly, more disclosure requirements for banks. I
think this will help--it will help with the clarity, but it
will also ensure that if someone, whether they are a crypto
customer or a minority customer who is trying to get access to
banking, they will understand why they are being told no.
Mr. Liccardo. Thank you.
I want to go to Mr. Grewal for a moment.
I understand the Federal Trade Commission (FTC) has
announced on Wednesday that it would withdraw its current
guidance to banks on engaging in crypto-related activities. I
know you have urged withdrawal of the OCC interpretive letter,
I think it was 1179, which you found to be inconsistent with
prior OCC letters.
To what extent does the FDIC's action address your
concerns? Do we still need to withdraw--somehow or another
enact legislation that would force the withdrawal of that OCC--
--
Mr. Grewal. Thank you, Congressman.
Mr. Liccardo [continuing]. letter?
Mr. Grewal. I think the FDIC's announcement was a positive
step, but I do not think it goes far enough.
The fact of the matter is that, in response to the
inspector general's report, the FDIC committed to conducting
risk assessments of the crypto activities that the banks wish
to engage in. To date, we have no indication whatsoever that
they did any assessment of the risks that they claim were so
significant that they could not even allow the banks to
participate in those activities at all.
The other thing I would point out is that the FDIC, in
response to our requests, abused the ``confidential supervisory
information'' designation to redact page after page of
materials in ways that were rejected by a Federal court. That
needs to be addressed.
Finally, in response to an order from a Federal district
court to produce these pause letters that we were referencing,
the FDIC misrepresented that its productions were complete.
I do think there is further work that needs to be done in
order to restore public trust in the FDIC, but at a minimum, I
do think that the announcement yesterday by the FDIC Acting
Chair was a constructive one.
Mr. Liccardo. Thank you.
Thank you, Mr. Chair. I yield.
Chairman Meuser. The gentleman yields.
Mr. Har---excuse me--Haridopolos from Florida is now
recognized for 5 minutes.
Mr. Haridopolos. Thank you, Mr. Chairman. I have trouble
with that name too. No problem.
Thank you very much for putting this together, Mr.
Chairman. This has been very illuminating, especially as a
first-year member of the committee. It is very helpful to get
us into the history of this, and this has been very helpful to
get this going.
In this, my first year in the Congress, we are trying to--I
know that Congressman Moore and I, both new to the committee,
are trying to kind of get under the hood and understand some of
these things. As an outsider, we watched the FTX crisis happen,
and I think we are kind of wondering where was the oversight?
It is frustrating to see so many folks lose, in many cases,
their life savings or significant savings and the total
disregard for their capital.
One of the messages you will hear from me consistently not
only today but throughout the year is ``certainty and
stability.'' To me, that is not only important in business but
in life, especially as you try to teach that to your kids.
What is really frustrating is, as I tried to do my homework
on this, I watched the videos from years past. Before Mr.
Gensler, for example, was actually in the job in the
government, his videos showed he was actually positive about
the industry, thought it would be something productive and
creating--using the blockchain to make sure you had that
certainty and understood what was happening. Yet, in some of
the first few days in this committee, we have learned that not
only that agency but also the CFPB is doing everything they can
to move capital out of our own country and go into places like
the United Arab Emirates (UAE) and Singapore. America is the
land of opportunity and where capital, I think, can strive
best.
With that said, I think I will just ask Mr. Grewal, if you
do not mind. I know these are rapid-fire questions--I am going
to give you a few minutes to walk me through what you went
with. We all saw FTX and the lack of regulation. What did you
all try to do, in working with the regulators, to say, we want
to be regulated, we want to stabilize this?
If you could walk me through--you have a few minutes? I
want to give you that opportunity because, too often, I am
watching these early days in Congress; it is, ``wham, wham,
bam.'' I want to hear your, kind of, thoughtful, laid-out
answer so people can understand what good companies are trying
to do versus some of those bad actors.
Mr. Grewal. Thank you, Congressman.
I referenced earlier the invitation by the prior SEC Chair
to come in and register. This was Mr. Gensler's constant
refrain to cryptocurrency firms like mine that were interested
in following the law but looked at the law and could see no
legal basis upon which to pursue registration.
Registration is a very important element of any sound
oversight and sound regulatory framework and structure for
firms not just in our industry but, frankly, in any industry.
Over and over again, when we met with the SEC, as I said,
dozens and dozens of times, when we presented ideas for a way
for intermediaries like Coinbase to register, a way for issuers
of the tokens themselves to submit disclosures that would
better inform consumers who purchased these tokens what it is
they were buying, when we shared ideas and concepts for ways in
which the SEC could coordinate its activities over securities
tokens and securities transactions with those of the CFTC,
which has authority over nonsecurities and commodities in
particular, we thought we had an opportunity. Yet, after these
dozens and dozens of meetings, we were simply invited to stand
up, step outside, and never come back.
A short while after that, Congressman, we were hit with a
lawsuit. For the last 2-plus years, my company and I have been
in Federal district court fighting an enforcement case where
there is no allegation of fraud, no allegation of abuse, and we
have tried at every turn to simply get rules that we can
follow.
Mr. Haridopolos. Thank you, Mr. Chairman. I yield back.
Chairman Meuser. The gentleman yields.
The chair now recognizes Mr. Moore of North Carolina for 5
minutes.
Mr. Moore. Thank you, Mr. Chair, and to our witnesses,
thank you for taking time to be here out of your schedules to
bring this information before the committee.
Just like Representative Haridopolos--you are right,
Chairman, it is a tough name. I had to practice it several
times--this has been a new experience. I served in our State
legislature in North Carolina, and so coming here and seeing
things, it has been eye-opening in a lot of ways.
One of the more eye-opening things that I have seen since
arriving here is how--I have seen how some of our friends on
the other side of the aisle will try to--I would describe it as
``weaponize'' the regulatory system to try to simply prevent
access to forms of capital.
It strikes me--I did a little research here. The country
has roughly, what, 334 million people in it. Most recent data
shows, of that, anywhere from 27 to 28 percent of the people in
our country either own or use crypto. Based on my--I was a
solid C student in math, but based upon that, I think that is
around 90 million people in this country who have confidence in
crypto.
What it seems has been happening by the previous
administration and by the other side is an attempt to try to
use the regulatory framework to simply tell those 90 million
people that they cannot invest or they cannot own in crypto. I
cannot, frankly, think of anything that is more antithetical to
a free-enterprise system.
I, first of all, thank those of you who are providing these
opportunities for just ordinary consumers to be able to
participate in a meaningful way in this new digital
marketplace. I think it is--digital currency is--not only is
the future; frankly, it is the present, when nearly a third of
the people in the country are actively using this.
I certainly do not want to repeat comments that have
already been made so well by other members of the committee,
but the regulatory framework of trying to add in the pressure
to banks to not engage with crypto, the pause letters, the
opaque--I guess is a way to describe it--supervisory warning
letters, and then, of course, the threats tied to the CAMELS
rating as well.
What we know about any kind of currency, any kind of thing
is, if it is a legitimate matter, which I would--or, a
legitimate business, which this member certainly thinks that
crypto is, then what is going to happen is, if there are simply
attempts to stifle it. It is going to go somewhere else where
it is allowed, whether it is in industries, I believe, banking
with State-regulated banks or, many cases, going offshore.
Mr. Grewal, I will just ask this question to you. One, it
does seem to me that, as U.S. regulators are impacting the
American digital asset community, it would appear--and you can
tell me if I am wrong--that it is impacting our ability to
compete globally? If that is, in fact, the case, sir, are there
any other countries that are more welcoming to that financial
innovation?
Mr. Grewal. Thank you, Congressman.
There is no question that the sclerosis that we have all
operated under here in the United States for the last many
years--I will put it that way--regarding legislation and
regulation has led to a flight from the United States to other
jurisdictions.
The Europeans, for example, have passed a market and crypto
assets form of legislation that, while not perfect, offers a
reliable, steady framework within which to operate. That has
drawn capital; that has drawn jobs.
It was mentioned earlier, Singapore, is another global
leader in cryptocurrency regulation. They, too, are drawing
capital, jobs, and, frankly, enthusiasm and creativity that
belongs here in the United States.
While crypto is a global technology and a global industry,
so much of the most important innovations actually were
developed here in America. Yet, through this absence of
regulation, this sclerosis, we have simply pushed entrepreneurs
and risk-takers--appropriate risk-takers, the kind of risk-
takers we used to be proud of in this country--to other parts
of the world.
Mr. Moore. Thank you very much.
Mr. Chairman, I yield back the balance of my time.
Chairman Meuser. The gentleman yields.
The chair now recognizes Mr. Davidson of Ohio for 5
minutes.
Mr. Davidson. Thank you, Chairman. Thanks for allowing me
to waive on to this subcommittee. I am the Chairman for
National Security and Illicit Finance. I have obviously been
involved in digital assets and capital markets for a while but
normally would not get to participate in this subcommittee, so
thank you.
It is a great hearing topic. Under the last Congress, I was
on the Weaponization Committee, and we dealt with Operation
Choke Point, frankly. We looked at how banks were weaponizing
the Bank Secrecy Act, really not of their own initiative but
under pressure from regulators and, frankly, the Department of
Justice and even the FBI, so thanks for coming.
Look, the idea that we are referring to this as ``Choke
Point 2.0'' is pretty embarrassing because it means there was
Choke Point 1.0., and that was under Obama, then under Biden,
so we are noticing a theme. Hopefully we will be clear because
Congress will take action to make sure that we lock in this
electoral mandate to reject the weaponized government that we
have seen and make the most of this market.
Just yesterday, having taken control of the FDIC from
disastrous leadership, the Trump Administration released 175
documents.
Mr. Grewal, you highlighted a number of implications from
some of those documents, but I just wanted to start with you
and be clear that the targeting of the industry not only
affected your company, but it affected Signature Bank. Barney
Frank's portrait is right up there, and he was on the board of
Signature Bank. He said there was no solvency issue, the
problem was they are banking crypto.
Did the improper seizure of Signature Bank scare the
industry?
Mr. Grewal. Yes, Congressman. The industry was not only
scared, but they were also terrified. That was a bank that was
meeting its customer requirements, fulfilling every regulatory
obligation, and simply because it chose to put its business
into the hands of the crypto industry and its customers it was
effectively told to shut down.
Mr. Davidson. Yes. They were targeted and, literally, the
assets were seized.
Look, it kind of reminds me in a pasture, cows, not all of
them have to hit the electric fence; They notice one of them
hit the electric fence, and everybody else kind of get the
memo, ``Stay clear.'' It seems like that was the intent.
Does anyone, kind of, disagree with that? Does that seem
like that was the intent?
Mr. Grewal. That was absolutely the intent.
Mr. Davidson. Thank you.
You highlighted the collaboration that firms were doing
with regulators. One of those, Mr. Campbell, in addition, as
the--the FDIC would demand letters of inquiry. They would say,
oh, give us a little more information, a little more
information.
Did they ever reach a point where they had learned enough
about the business model and say, ``Oh, well, now we
understand, you are green-lighted to go ahead and participate,
you are safe and sound?'' Did they ever do that?
Mr. Campbell. No. As best we know, almost no bank was ever
given approval for these actions.
Mr. Davidson. I think there is a coordinating committee. I
do not know really where they met or what the nexus was.
Elizabeth Warren kind of wants to take credit for it. Gary
Gensler met with her often. Lael Brainard from the FDIC, or the
Federal Reserve System (Fed) kind of went into the
administration and they seemed to be coordinated in the effort
to shut down the industry.
I think that, if anything, you will see a coordinated
approach to, kind of, deweaponize that and let the money be the
money.
The reality is, we have seen for a long time--and, look,
some of my colleagues highlighted it by saying, oh, it is
targeting Black or Brown people or whatever. The reality is,
unfortunately, at times in our country's history, we have seen
the financial services sector basically used as leverage to
say, ``Oh, well, you are not going to bank those people, are
you?''
In this case, it really meant somebody with a business
model. It did not mean that it was sound or unsound. It just
meant, ``We do not like you. You are not going to bank those
kinds of people, are you?'' That is exactly what the
administration was doing to this entire sector.
Sadly, we are seeing that happen in other sectors. In
nearly every State in the country, some form of marijuana is
legal, but you see, kind of a second tier of backdoor making it
illegal by saying, ``Oh, well, you are not going to bank those
people, are you?'' People, whether they are investors,
employees, or anything else, in a lawful sector are being
debanked.
Ms. Olesiuk, could you give us some insight into what we
could do about that?
Ms. Olesiuk. Thank you for the question, Congressman.
I think that we need to focus on, as I said earlier, the
risk analysis of every--the regulators need to ensure that
there is a proper risk analysis being done of the risk that is
being taken on, and every lawful business, customer and person
are entitled to access to the banking system.
Mr. Davidson. Yes, we could pick up on that. We have done a
lot. One of those bills was Secure and Fair Enforcement
Regulation Banking Act (SAFER). Hopefully we will get something
like that along the finish line as a result of this focus on
Choke Point.
Thanks for the opportunity, and I yield back.
Chairman Meuser. The gentleman yields.
Mr. Downing of Montana is now recognized for 5 minutes.
Mr. Downing. Thank you, Mr. Chairman.
Now, as Montana's former regulator for securities and
insurance, my mission was to hold bad actors accountable, to
lower insurance costs, and to reduce unnecessary regulations
for Montana businesses. Tried to partner with business, tried
to streamline that, while making sure that we do hold those bad
actors accountable. My job was not to tell businesses who they
can work with.
The priority of the regulators is safety and soundness.
Under Joe Biden, the priority was picking winners and losers
and pushing policies that could not get enacted through
Congress, from suffocating fossil fuel companies to stifling
digital asset innovation in the United States.
My first question: Mr. Grewal, can you tell me what you
expect regulators to do to protect the safety and soundness of
the digital asset ecosystem?
Mr. Grewal. Thank you, Congressman.
I suppose, to put it as simply as I can, to say what they
want us to do and, when we do it, to say what else we need to
do in order to comply with their expectations.
It is the combination of refusing to lay out simple rules
that we can all follow and, when they have questions with
compliance with those rules, operating under the cloak of
secrecy and using tactics such as delay and obfuscation to
essentially exhaust the firm into submission.
Mr. Downing. Thank you.
Mr. Campbell, do regulators treat digital asset companies
differently from other lines of business?
Mr. Campbell. Yes, sir.
Mr. Downing. Yes.
Mr. Thiel, do you believe the Choke Point 2.0 scheme drives
companies like yours out of the United States?
Mr. Thiel. Congressman, 2 years ago, we made the public
statement that we were going to move 50 percent of our revenues
offshore because of the regulatory environment we were
operating in.
We grew at a very fast rate. We tripled our size in 2023.
We doubled it again last year and will likely grow at a very
large rate this year. We make investments, if you look at last
year alone, of $2 billion in the United States. That $2 billion
results in $10 billion of gross domestic product (GDP) growth,
jobs are created, people get schools paid for. In communities
in Texas, our property taxes, alone, fund the fire department,
the police department, and all sorts of public services.
The fact that we have to look to go offshore for that,
which increases our cost of doing business, is the only way we
can survive as a business when the regulatory environment is
antagonistic to our business.
Mr. Downing. Thank you.
I am proud to represent Montana's Second District. It is
very rural and sparsely populated.
Mr. Thiel, when companies are forced to shut down or exit
due to unreasonable and political regulations, what is the
future of innovation in States like Montana?
Mr. Thiel. Unfortunately, Congressman, innovation ceases to
exist in those States when technology companies like ourselves
move out of the State.
One of the downstream benefits for companies like us to
come into States, especially rural States like Montana, is, we
have to train technicians. We hire technicians; we up-skill
them. We hire a lot of veterans, and we are a very proud
employer of many veterans. We up-skill them so they are able to
service these technology products that we put in the field,
they are able to operate them, install them, manage them,
monitor them and if we pull up stakes and go, there are not
other jobs for them----
Mr. Downing. Right.
Mr. Thiel [continuing]. in those regions.
Mr. Downing. Thank you.
The United States must maintain its position as the hotbed
for innovation around the world. Access to banking services is
crucial for fostering growth and opportunity. If you take issue
with an industry, you can always pass a law rather than allow
unelected bureaucrats to foreclose on their ability to do
business.
Thank you, Chairman, for holding this hearing. I am happy
there is a new administration and Congress who value fostering
innovation in the United States.
I yield back.
Chairman Meuser. The gentleman yields.
The chair now recognizes the Ranking Member, Mr. Green, for
5 minutes, of Texas.
Mr. Green. Thank you, Mr. Chairman.
Permit me to ask, have any of you read some document from
the Biden Administration or some regulator indicating that
there is an Operation 2.0 Checkpoint--or Operation Choke Point
2.0? Have you--from the Biden Administration, that said
``2.0''?
Okay, so this is a made-up statement. Somebody concluded
that this is something that sells, so they have gone with
``2.0.''
I was here in 2008 when we had the downturn, and it was
never alleged that too much regulation caused the problem.
I was here when Bernie Madoff made off with more than $60
billion. It was never alleged that too much regulation is what
allowed him to do it.
Silvergate, Signature Bank--in fact, my colleagues have
indicated that it was the regulators that caused the problem, a
lack of regulation, not all, but some have.
The question becomes this: Do you want too much regulation,
too little regulation, or do you want it to be the
``Goldilocks,'' just right? Would not we all?
The point is, given what is happening without guardrails as
it relates to cryptocurrency--and I believe that--would you
agree that we need some more guardrails? Anybody agree? Okay.
If you agree, raise your hands. Just raise your hand, please.
Okay. Everybody agrees.
Where do the guardrails come from? Somebody might say
Congress. Would you agree that Congress is the place where
guardrails should emanate? Raise your hands, please.
Okay. Thank you.
For Congress to act, you have to have an act of Congress.
Congress has not been able to act, for various and sundry
reasons. I do not want to get into all of it, but the
regulators are in a tough position.
I would not want to be a regulator. That is a tough job,
because if a bank fails, then you did not do enough, and then
if it somehow does not give you the kind of regulation that you
want, it is too much. I would not want to be a regulator, but I
do know this, I was here to receive all of the complaints in
2008 and all of the complaints in the 1960s. I think it was
when Bernie Madoff performed his dastardly deed.
A good many people who want less regulation will not be
here to receive the complaints. They come and they go, but
there are some of us who have decided that we want to be here
today and tomorrow and thereafter, and we have been fortunate
enough and blessed enough to do it.
I am not going to get angry with regulators because those
who are regulated contend that they are over-regulated. I want
to fix a problem, but I am not going to take all of this and
conclude that the regulators are over-regulating, when you all
agree that there should be guardrails.
At some point, Congress has to act. I have seen Chairwoman
Waters when she was chair and as ranking member. She and Mr.
McHenry worked to try to give us the guardrails, but it is
difficult to satisfy enough members to get something done.
If these banks fail, and you have a cascading event, we
will find ourselves revisiting 2008. When Silvergate and
Signature Bank, when they went under, one of our great fears
was that this could become the start of a domino effect. I
remember how hard our ranking member worked, with others, to
try to prevent this.
I thank you for your testimony. I assure you, I am going to
do what I can to make sure that you are being treated fairly,
but if I am going to err, it would be on the side of regulating
and not deregulating.
I yield back.
Chairman Meuser. The gentleman yields.
The gentleman from Wisconsin, Mr. Steil, is now recognized
for 5 minutes, the Chair of the Subcommittee on Digital Assets.
Mr. Steil. Thank you very much, Mr. Chairman.
I appreciate all of you being here today. As Chairman of
the Subcommittee on Digital Assets, I take great interest in
this and appreciate you, Mr. Chairman, for waiving me on to the
committee today on what has been an incredibly important
conversation.
My colleague across the aisle, in his closing remarks for
the minority, referenced that ``Choke Point 2.0'' might be a
made-up statement, but I feel like that is as if you open the
door of your home, the sidewalk and driveway is wet, and you
conclude, ``A-ha, but I did not see the rain.'' It is pretty
obvious what is going on when you actually look behind the hood
and use common sense, just like if you opened your door and you
look out and your driveway is wet, common sense tells you that
it rained.
If we look at what played out in the Biden Administration
through the regulators and what played out through their pause
letters, which we have discussed today, through informal or
offline means, it was pressure of financial institutions to
debank digital asset firms and to make sure that those
individuals understood that pressure was there across the
ecosystem. I think that is what we really see today at today's
committee hearing.
It is the importance of not allowing--as we discovered in
Choke Point 1.0 with our Second Amendment rights--not allowing
the regulators to drive forward a political agenda through
their authority as regulators to correctly assess risk across
the system but not to put their finger on the scale as a result
to their individual view of any given industry that the bank or
financial system should be lending into.
I think that is kind of a stage-setting. What I want to do
is dig in briefly, if I can. I will start with you, Mr.
Campbell, and then I will move along.
I think one of the important parts here to discuss is, kind
of, how bank examiners define traditional risk and how it is
different from reputational risk. Succinctly, can you give me
the difference between those because I want to build on that?
Mr. Campbell. Yes. Reputational risk is essentially: we
believe a bank is doing something that could damage its
reputation in some ways that would cause customers to disfavor
it, versus forms of business risk that are more objective, like
you are lending to very risky people.
Mr. Steil. Would reputational risk--could that be used as a
shield for regulators to inject political objectives into the
banking system?
Mr. Campbell. It certainly could be, yes.
Mr. Steil. Do you think that was the case as it relates to
crypto investments?
Mr. Campbell. There is a great example of that. Paxos ran
Binance USD (BUSD) in New York. They have been regulating
stablecoin since 2018 and thanks to regulatory pressure, that
had to be shut down.
I have the privilege of having built one of two stablecoins
that was above $10 billion and went back to zero. We disrupted
no markets, returned every penny. There was no danger to
everybody and shutting it down benefited Tether.
Mr. Steil. Let me jump to you, Mr. Grewal, if I can, to
build on this. In your experience, how do regulators and banks
think about reputational risk? To what extent does the
political bias or policy bias of the regulators--how are they
leveraging those two risks to drive their agenda?
Mr. Grewal. Reputation in banking matters, Congressman.
There is no question about it, but it is too often used as a
catch-all or an excuse for other considerations that have no
basis in law or, frankly, no basis in fairness.
There is no question that additional guidance from this
Congress would be extraordinarily helpful in cabining or
restricting the use of reputational risk to simply deem
unacceptable all sorts of industries or individuals who happen
to be out of political favor.
Mr. Steil. I think, broadly speaking, as we wrap up today's
hearing--and thank you, Mr. Chairman, for scheduling it--this
is a broader point, that politics do not belong in our banking
laws. What we want is the regulators, on their task, to analyze
actual risk in the system rather than putting their finger on
the scale to drive forward their own partisan, political, or
social agenda.
Having today's hearing on Choke Point 2.0, in recognition
that this really was occurring by the regulators inside the
Biden Administration, I think is important.
I think it is a bit naive or attempting to discredit the
facts to say that it is not occurring. Again, I go back to my
analogy. If you open the door of your home and the pavement is
wet and your driveway is wet, it rained. As we look back as to
what happened inside our financial system under the Biden
Administration, we could have a debate of whether or not you
feel like you need more evidence, but I think the evidence is
pretty clear, it rained. We need to stop this, and we have a
real opportunity.
One final point. It was referenced that legislation did not
get done in the previous Congress under the Biden
Administration. The good news is, we have Republican-unified
control, and I think we have a great opportunity for Congress
to act. I look forward to working with everybody.
Mr. Chairman, I yield back.
Chairman Meuser. The gentleman yields.
Before we adjourn, I am going to take a point of personal
privilege and yield to the ranking member.
Mr. Green. Thank you again for your kindness, Mr. Chairman.
Mr. Chairman, sadly, today--and, to a certain extent,
happily--we have one among us who is going on to bigger and
better things. She has been an outstanding public servant, a
brilliant, brilliant, brilliant asset to the committee, in that
she has worked with us--many of the things that we have been
able to do successfully we can attribute to her and her
brilliance.
Today, Esther Kahng is going to be leaving us shortly. This
is her last hearing, and I would hope that we respect her and
appreciate her enough to give her a round of applause.
[Applause.]
Mr. Green. With that, Mr. Chairman, I will yield back.
Chairman Meuser. The gentleman yields.
We would certainly like to thank our witnesses for their
testimony today.
I think it is clear we need the FDIC to provide clear
guidance and regulatory responsibility for the digital asset
industry. Congress and this committee will create a framework
for digital assets regulation, but prudential regulators must
immediately allow the crypto industry access to financial
services.
Without objection, all members will have 5 legislative days
within which to submit additional written questions for the
witnesses to the chair.
Questions will be forwarded to the witnesses for their
response. I ask our witnesses to please respond no later than
March 31, 2025.
[The information referred to can be found in the appendix.]
Chairman Meuser. This hearing is adjourned. Thank you all.
[Whereupon, at 3:48 p.m., the subcommittee was adjourned.]
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