    [Senate Hearing 119-364]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 119-364

             INVESTIGATING THE REAL IMPACTS OF DEBANKING IN AMERICA

    =======================================================================

                                    HEARING

                                   before the

                                  COMMITTEE ON
                       BANKING,HOUSING,AND URBAN AFFAIRS
                              UNITED STATES SENATE

                        ONE HUNDRED NINETEENTH CONGRESS

                                 FIRST SESSION

                                       ON

                                   EXAMINING

                          ACCESS TO FINANCIAL SERVICES
                                   __________

                                FEBRUARY 5, 2025
                                   __________

      Printed for the use of the Committee on Banking, Housing, and Urban
                                    Affairs

                   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                    Available at: https: //www.govinfo.gov/

                                    ______

                       U.S. GOVERNMENT PUBLISHING OFFICE

    63-425 PDF                 WASHINGTON : 2026

                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      TIM SCOTT, South Carolina, Chairman
                ELIZABETH WARREN, Massachusetts, Ranking Member

    MIKE CRAPO, Idaho                    JACK REED, Rhode Island
    MIKE ROUNDS, South Dakota            MARK R. WARNER, Virginia
    THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
    JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada
    BILL HAGERTY, Tennessee              TINA SMITH, Minnesota
    CYNTHIA M. LUMMIS, Wyoming           RAPHAEL G. WARNOCK, Georgia
    KATIE BOYD BRITT, Alabama            ANDY KIM, New Jersey
    PETE RICKETTS, Nebraska              RUBEN GALLEGO, Arizona
    JIM BANKS, Indiana                   LISA BLUNT ROCHESTER, Delaware
    KEVIN CRAMER, North Dakota           ANGELA D. ALSOBROOKS, Maryland
    BERNIE MORENO, Ohio
    DAVID MCCORMICK, Pennsylvania

                        Lila Nieves-Lee, Staff Director
                     Jon Donenberg, Minority Staff Director

                          Cameron Ricker, Chief Clerk
                          Shelvin Simmons, IT Director
                           Pat Lally, Assistant Clerk

                        Sheryl L. Arrington, GPO Detail
                          Jason T. Parker, GPO Detail

                                      (ii)

                                C O N T E N T S

                                  ----------

                          WEDNESDAY, FEBRUARY 5, 2025

                                                                       Page

    Opening statement of Chairman Scott..............................     1
            Prepared statement.......................................    49

    Opening statements, comments, or prepared statements of:
        Ranking Member Warren........................................     3
            Prepared statement.......................................    50

                                   WITNESSES

    Nathan McCauley, Cofounder and CEO, Anchorage Digital............     5
        Prepared statement...........................................    51
    Stephen T. Gannon, Partner, Davis Wright Tremaine LLP............     7
        Prepared statement...........................................    54
    Mike Ring, President, CEO, and Cofounder, Old Glory Bank.........     8
        Prepared statement...........................................    85
    Aaron Klein, Senior Fellow in Economic Studies, Brookings
      Institution....................................................    10
        Prepared statement...........................................    87
        Responses to written questions of:
            Senator Cortez Masto.....................................   102
            Senator Blunt Rochester..................................   102

                  Additional Material Submitted for the Record

    Letters and Statements submitted to the Committee................   104

                                     (iii)

             INVESTIGATING THE REAL IMPACTS OF DEBANKING IN AMERICA

                                  ----------

                          WEDNESDAY, FEBRUARY 5, 2025

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 10 a.m., via
    Webex and in room 538, Dirksen Senate Office Building, Hon. Tim
    Scott, Chairman of the Committee, presiding.

        Present: Senators Scott, Rounds, Tillis, Kennedy, Hagerty,
    Lummis, Britt, Ricketts, Banks, Cramer, Moreno, McCormick,
    Warren, Reed, Warner, Van Hollen, Cortez Masto, Smith, Warnock,
    Kim, Gallego, Blunt Rochester, and Alsobrooks.

                OPENING STATEMENT OF CHAIRMAN TIM SCOTT

        Chairman Scott. I'd like to invite the witnesses to come
    sit at the table. Thank you.
        Good morning, and thank you all for being with us today.
        We're here to address an issue that strikes at the core of
    what it means to live in a free and fair society: access to
    financial services.
        Every federally legal business and law-abiding citizen
    deserves to be treated equally, regardless of political views
    or ideological leanings.
        This is an issue that is deeply personal to me.
        When my grandfather was growing up in the Jim Crow South,
    banks did business with people they felt looked the right way--
    based on the color of their skin.
        One's ability to get a loan to finance their home or start
    a business was based primarily on the color of their skin. And
    in the 1940s, my mother experienced the same redlining that has
    been persistent, pervasive, and unfortunate for decades.
        Thankfully, our Nation continues to evolve in the right
    direction.
        And in the 1990s, when I was starting my small business, I
    went to a bank and looked for an opportunity to get a loan.
    I'll say, without any question, at that time as a kid growing
    up in poverty in a single parent household, my best asset--Mr.
    Ricketts--was a 1990, 10-year-old car with 253,000 miles. One
    would not consider that an asset, perhaps a liability. But it
    was my only means of transportation. And I will tell you,
    without a doubt, for me, it was an asset.
        The bank, however, completely helped me understand it was
    not. However, in those days someone could get a character loan,
    because of your time in a community, because of your
    relationships with local and community banks. Because of that,
    not only was my financial life changed, not only did my
    American Dream become a reality, but more importantly, my
    mother's American Dream became a reality. We saw the
    strengthening of confidence in our banking system because
    things had changed in the right direction. With that loan,
    everything seemed to get better.
        Had I not gotten that line of credit, I may not be here
    chairing this Committee today. You see, my story is so
    consistent with so many other stories that really reflects
    positively on the American Dream.
        In this country, access to credit is one of the
    cornerstones of building your American Dream.
        Owning a home and starting a business are challenging
    journeys filled with complexities, and achieving success is
    never a guarantee, nor should it be. That's why access to
    financial services is so important.
        The United States is home to a vast competitive network of
    banks and payment providers, creating one of the most robust,
    diverse financial services ecosystems on the planet.
        It is this incredible landscape that offers countless
    opportunities for homeowners and entrepreneurs to build a
    healthy foundation and make strides toward achieving their
    version of the American Dream.
        However, it is incredibly alarming and disheartening to
    hear stories about financial institutions cutting off services
    to digital asset firms, political figures, and conservative-
    aligned businesses and individuals.
        Under the Biden administration, we've seen the rise of what
    many are calling Operation Choke Point 2.0, where Federal
    regulators exploited their power, pressuring banks to cutoff
    services to individuals and businesses with conservative
    dispositions, or folks aligned with industries they just didn't
    like--like the color of one's skin in my family's history.
        I wholeheartedly believe that debanking someone over their
    political ideology is un-American and goes against the core
    values that our Nation was founded upon.
        Today we'll have an opportunity to hear from Anchorage
    Digital's CEO, whose OCC-chartered bank was debanked, Old Glory
    Bank's CEO, who started a bank to serve those who had been
    debanked, and from a legal expert with extensive experience
    navigating these regulatory abuses, and from a policy expert at
    the Brookings Institution.
        This hearing will also examine how practices similar to the
    original Operation Choke Point have persisted, despite
    assurances that they would end.
        We'll investigate the role both regulators and financial
    institutions have played in these harmful practices which hurt
    not just businesses but also consumers and our entire economy.
        This issue should concern every single American, regardless
    of political affiliation and that's why I'm committed to a
    bipartisan solution to stop this form of discrimination.
        This hearing is just the beginning.
        We are here to shine a bright light on these unacceptable
    practices and to hold those responsible accountable. The
    message is crystal clear: no regulator and no bank is above the
    principles of fairness and market access.
        Speaking of shining a light, I was so glad to see that just
    a couple of hours ago, the FDIC under President Trump's
    leadership released a fresh set of never-before-seen
    supervisory documents, which further prove that Choke Point 2.0
    was real.
        I will be going through the documents in greater detail,
    but rest assured for those in this room and those watching at
    home, they paint a disgusting and disheartening picture of
    abuse.
        As Acting Chair Hill characterized them, these and other
    actions sent the message to banks that it would be
    extraordinarily difficult--if not impossible--to move forward
    with crypto-related activities.
        I commend the new FDIC leadership for its commitment to
    transparency, but it is a shame that it took an election--an
    election--for the agency to being following the laws of our
    country.
        Thank you. I look forward to hearing from our witnesses and
    working with colleagues on both sides of the aisle to stop
    debanking and protect every American's right to participate
    fully in the economy.
        Ranking Member Warren.

          OPENING STATEMENT OF RANKING MEMBER ELIZABETH WARREN

        Senator Warren. Thank you, Mr. Chairman. And thank you for
    holding today's hearing on debanking. It's a real problem, and
    it's something that I hope we can work on together.
        People need access to a banking account in order to thrive
    in today's economy. And the same goes for businesses. Without a
    banking account, you just really can't get along.
        ``Debanking'' happens when a bank shuts down a customer's
    bank account because they think that account poses a financial,
    a legal, or a reputational risk to the bank. Once the bank
    shuts someone out, the bank may share that information with
    companies that get paid to maintain a Do Not Bank list--with
    the result that the customer is blacklisted everywhere.
        For me, this is straightforward. It doesn't matter who you
    voted for, what you believe in, or the origin of your last
    name--people shouldn't be arbitrarily denied access to their
    banks, locked out of their accounts, or stripped of their
    banking privileges.
        To help identify what's going on, my staff reviewed the
    Consumer Financial Protection Bureau's complaint database,
    looking for cases where consumers reported that they were
    unable to open accounts or that their accounts were wrongly
    closed--classic debanking. Mr. Chairman, we put together a
    supplemental memo on this data, and I'd like to make that part
    of the Committee record.
        Chairman Scott. Without objection.
        Senator Warren. My staff identified 11,955 complaints--and
    that is only the people who took the time to file complaints
    and only during the past 3 years.
        All of these complaints reported common themes: no warning,
    no explanation, and no chance to dispute or appeal.
        These people described how one day, all of a sudden, they
    lost their place in the banking system.
        We know from the consumer complaint hotline that millions
    of Americans--of all political stripes--have had the same
    experience.
        Tens of millions of customers have been blacklisted by the
    banking industry because they overdrafted their account a few
    times.
        Formerly incarcerated Americans have been debanked because
    of their criminal history.
        Some people have even been debanked merely for having the
    same name as someone who has a criminal history.
        Muslim Americans and Armenian Americans have faced
    debanking on account of their last names.
        Nonprofits and charities operating internationally have
    been debanked through no fault of their own.
        Lawful cannabis businesses have been unable to open
    accounts, and employees of those businesses have been debanked.
        This shouldn't be happening. And we need to figure out why,
    and who is responsible. My staff did some more work here as
    well. They found that just four big banks--Bank of America,
    JPMorgan, Wells Fargo, and Citibank--accounted for half of all
    the complaints filed at the CFPB.
        Donald Trump was onto a real problem when he criticized
    Bank of America for its debanking practices.
        Banks may be taking shortcuts when it comes to assessing
    risks. Rather than investing the time and the resources to
    identify true criminal risks and shutting down those accounts,
    big banks are relying on black box algorithms and middlemen
    companies and shutting down accounts without doing careful due
    diligence.
        We can prevent these abuses. I know that the Consumer
    Financial Protection Bureau is a favorite whipping boy of the
    Republicans on this Committee, but the CFPB is the main agency
    in our Government that is actively working to stop unfair
    debanking.
        Let me say that again. The CFPB is the one agency that is
    actively working to stop unfair debanking. Right now, the
    agency has five different rules either in place or in progress
    that would help prevent debanking by addressing some of the
    root causes, from overdraft fee practices to religious
    discrimination. And the CFPB is working to hold banks
    accountable when they close law-abiding citizens and
    businesses' accounts for no good reason.
        I sent a letter to President Trump today that walks through
    the CFPB's work. And I'd like to make that part of the
    Committee record.
        Chairman Scott. Without objection.
        Senator Warren. I said that the CFPB is the one agency
    fighting back against debanking, but that may be at risk.
    Earlier this week, Treasury Secretary and Acting CFPB Director
    Scott Bessent halted all CFPB rulemaking, enforcement
    investigations, and litigation against financial institutions
    that are breaking the law--including the banks that are
    wrongfully debanking their customers. The freeze Secretary
    Bessent put on the CFPB means more Americans across this
    country will be unfairly debanked, and they will the one agency
    that is working to help them.
        There is additional work to be done by the Treasury
    Department, the Federal Reserve, the FDIC, and other regulators
    to issue clear Anti-Money Laundering rules and guidance for
    banks to follow, which would reduce the incentive to use
    debanking as a form of risk management.
        Mr. Chairman, I'll say again: I appreciate your holding
    this hearing. Debanking is a real problem. I'm eager to work
    with you and President Trump to support the CFPB's efforts to
    make sure that everyone is treated fairly and that we put an
    end to this debanking.
        Chairman Scott. Thank you, ma'am.
        I now recognize our first witness, Mr. Nathan McCauley, CEO
    and Cofounder of Anchorage Digital. You may begin your
    testimony. Thank you for being here.

       OPENING STATEMENT OF NATHAN MCCAULEY, COFOUNDER AND CEO,
                           ANCHORAGE DIGITAL

        Mr. McCauley. Thank you, Chairman, Ranking Member, and
    distinguished Members of this Committee for having me as a
    witness today on the important issue of debanking.
        My name is Nathan McCauley. I'm the CEO and Cofounder of
    Anchorage Digital, an institutional crypto platform that is
    home to the Nation's only federally chartered crypto bank. I
    grew up in Economy, Indiana, a population of about 150. Though
    I came from what many call flyover country, and one of my first
    jobs was grilling burgers at McDonalds--I had big dreams. I
    wanted to be a computer engineer and entrepreneur. Early in my
    career, I worked on cryptography as a security engineer. In
    2017, after being asked for years by friends to help them
    manage the private keys to their crypto wallets, my cofounder
    and I decided to start a company to offer a safe way for
    institutions to custody their crypto at scale.
        That company is Anchorage Digital, with about 400 employees
    around the globe, including 282 employees across 37 different
    U.S. States and offices in South Dakota, New York, Portugal,
    and Singapore. While we started out as a State trust company, I
    believe that our company clients and the industry would benefit
    from the highest regulatory standards. So we chose to pursue a
    national bank charter under the OCC that would allow us to
    offer crypto custody, staking, settlement, and other services
    to our institutional clients.
        We received the charter in January of 2021, the first and
    still only of its kind. Today, we're privileged to safeguard
    billions of dollars worth of crypto for institutions ranging
    from crypto protocols to asset managers to sovereign wealth
    funds.
        I'm here today to talk about something I could not have
    imagined when I started this company, not in America. That is a
    story of how we were virtually shut out of the Federal banking
    system despite being a Federal bank ourselves. Since January of
    2021, we held a corporate bank account with a partner bank
    which held client fees from custody and other services along
    with general corporate funds for day-to-day expenses like
    payroll and administrative expenses.
        One day in June of 2023, we received an urgent email from
    the bank saying they need to speak with us that day. On the
    call, they told us they were closing our account in 30 days
    because they were not comfortable with our crypto clients and
    their transactions. They refused to provide any further
    explanation or allow us to speak with a risk management team.
        Needless to say, I was shocked. We had a positive
    relationship with our bank for nearly 2\1/2\ years. Not once
    had they raised any issues with our account. In fact, at the
    time we were told our account would be closed, we were in
    active talks to expand our relationship and new partnerships.
        Separately, following the closure of the banks where we
    held our capital reserve and fiat subcustody accounts for our
    clients, we had extreme difficulty finding new bank partners.
    We spoke to about 40 banks across the country and were rejected
    by all of them, many telling us they had a blanket policy
    against serving crypto clients.
        So why did this happen? I believe that regulators pressured
    banks to shut an entire industry out of the Federal banking
    system. Why do I think this? Two things: a series of crypto
    regulatory actions spanning from 2021 to 2023 and my own lived
    experience.
        First, in my written testimony, I go into great detail
    about the long list of anti-crypto regulatory actions that led
    to mass debanking of our industry. But in my view, the nail in
    the coffin was the joint statement from the Fed, FDIC, and OCC
    in January of 2023, warning national banks from serving crypto
    clients or engaging in crypto activities of their own.
        Second, I want to talk about my lived experience. Outside
    of what happened to our company, I'm an investor in four crypto
    companies that struggle to obtain and keep their bank accounts.
    During this time, some of them actually had to shut down.
    Further, I have at least two employees that have debanked
    because what they believe is associated with the crypto
    industry, including one as recently of December of last year.
        Finally, I have spoken to dozens of crypto leaders that
    have been debanked personally or had their crypto companies
    debanked.
        While Anchorage Digital was eventually able to find banks
    willing to partner with us, the impact of nearly being shut out
    of the banking system was devastating. It was extremely
    disruptive to our business and our clients and contributed to
    the very difficult decision to lay off 70 employees here in the
    United States, about 20 percent of our staff.
        To this day, our clients lack the ability to send wire
    transfers to third parties, a basic banking service we
    previously had access to. Furthermore, it abruptly ended
    opportunities to provide subcustody to other national banks who
    are actively exploring partnerships with us.
        The irony of having trouble accessing the Federal banking
    system despite the fact that we ourselves are a federally
    chartered bank cannot be overstated. Congress is right to
    investigate what happened to us and our peers across the
    industry, to protect and promote fair and open access to
    banking services for all law-abiding citizens and companies.
        Thank you for the opportunity to appear today, and I look
    forward to answering your questions.
        Chairman Scott. Thank you, sir.
        Mr. Stephen Gannon, Partner at Davis Wright Tremaine, you
    are now recognized.

     OPENING STATEMENT OF STEPHEN T. GANNON, PARTNER, DAVIS WRIGHT
                              TREMAINE LLP

        Mr. Gannon. Good morning, Chairman Scott. I thank you and
    the other Members of the Committee.
        Chairman Scott. Hit your button.
        Mr. Gannon. Thank you, Mr. Chairman.
        Chairman Scott. Yes, sir.
        Mr. Gannon. And good morning. And I thank you and the other
    Members of the Committee for the opportunity to address you on
    the matter of the underlying policies, processes, and norms
    that have allowed debanking to continue.
        I'm a partner at the law firm of Davis Wright Tremaine, and
    for 20 years prior to that, I was a senior legal executive at
    several large banks and bank owned broker-dealers.
        Debanking has come to my attention, both in my in-house
    roles and in private practice as a lawyer who represents both
    banks and digital asset firms. Debanking, of course, is not
    new. This Committee is familiar with the unfortunate history of
    Operation Choke Point 1.0 in which former FDIC Chair Bill Isaac
    described it as one of the most dangerous programs he had
    experienced in his 45 years of service in the Government and
    the private sector.
        The Committee also has seen examples of debanking, both
    this morning and on the record. One more may illustrate the
    challenge posed directly to banks by virtually unbound
    supervisory discretion. A small bank had been making tax refund
    anticipation loans.
        Those loans were legal then, and they're legal now. The
    FDIC, however, instructed it to stop that business. The bank
    refused. And according to a report by the FDIC's OIG, the bank
    and its tax preparers then became the subject of a special
    horizontal review staffed by 400 FDIC examiners.
        I'll now address the building blocks used by regulators to
    engage in debanking activity. They depend on broad, vague, and
    malleable terms, always subject to reinterpretation by
    supervisors. You could call it strategic ambiguity.
        For example, reputation risk does not relate to the
    financial condition of a bank but rather on how an examiner
    perceives the reputation of the bank. And because reputation
    risk can impact any aspect of bank management and bank risk, it
    is literally everywhere and subject to unlimited discretionary
    judgment of bank examiners. And in the same vein are terms such
    as safety and soundness and risk of future harm.
        Finally, there's the term management, the M element of the
    well-known CAMELS rating system. Unfortunately, management has
    come to mean almost anything the supervisors find to be
    unacceptable, regardless of whether there is an impact on the
    financial health of the bank. And a poor management rating can
    have disastrous consequences for a bank's business going
    forward.
        Compounding the problem, this kind of arbitrary discretion
    is not subject to meaningful challenge. Supervisory
    examinations are shrouded in secrecy and are not available for
    any effective review by the very banks whose information is
    being analyzed. Bank regulators contend that everything done
    within the envelope of an examination is confidential
    supervisory information and that CSI is the property of the
    regulator itself, even though that argument rests on weak legal
    and constitutional grounds.
        The digital asset industry has felt this impact with great
    intensity. For example, in 2021 and 2022, using interpretative
    letters, each banking agency promulgated an unusual prior
    restraint requirement called a supervisory nonobjection before
    any bank could engage in permissible crypto activities.
    Notably, these letters met the definition of a rule under the
    Congressional Review Act.
        But they were never submitted to this body for review under
    that law, and no bank has dared to disobey their mandates. This
    exercise of nearly limitless regulatory discretion suffers from
    a fundamental problem. It distorts the relationship between a
    regulatory agency and Congress. Under Article 1, the entirety
    of an agency's power is delegated to it by Congress. Not some
    of it, all of it.
        If an agency wishes to make a legal business illegal, it
    must ask Congress for that power. Debanking of legal businesses
    ignores that fundamental concept and also contravenes this
    Administration's recent Executive order stating that regulatory
    agencies are to, quote, protect and promote fair access to
    banking services. The good news is that there are a series of
    remedies that can be implemented, some starting even today, as
    we discuss in our written statement.
        But while those remedies look forward, it cannot be stated
    strongly enough that the challenge remains to provide full and
    complete remedies for those already harmed by banking.
    Commentators wrote after Operation Choke Point 1.0 that we have
    to demand that accountability and those remedies or we risk
    setting a terrible precedent, that ideology can control our
    regulatory agenda at the expense of banks and small businesses
    alike. But despite the best efforts of Congress, the spirit of
    Operation Choke Point 1.0 did not end in 2017. It simply
    morphed into Operation Choke Point 2.0.
        Mr. Chairman, history teaches us that if this time there is
    no real accountability and no genuine remedies for the actual
    damage done, one thing is certain. There will be an Operation
    Choke Point 3.0. Thank you.
        Chairman Scott. Thank you, Mr. Gannon.
        I will turn to Mr. Mike Ring, President, CEO and Cofounder
    of Old Glory Bank. You are now recognized. Thank you.

    OPENING STATEMENT OF MIKE RING, PRESIDENT, CEO, AND COFOUNDER,
                             OLD GLORY BANK

        Mr. Ring. Thank you, Chairman Scott, Ranking Member Warren,
    other Members. Thank you for having me and allowing me to share
    the story of Old Glory Bank which launched from beautiful
    Elmore City, Oklahoma, in April of 2023, and became a market
    solution to debanking. And Chairman Scott, we are a community
    bank that does do character loans, and we would love to have
    your business. Nathan, we have a program on being the on-off
    ramp for crypto, and we would love your business.
        [Laughter.]
        Mr. Gannon. Do you have one for law firms?
        Mr. Ring. You bet. I'm honored to speak on behalf of more
    than 50,000 customers across all 50 States, our 88 passionate
    employees, and our pro-America cofounders, including someone
    here today. I've got radio and TV host Larry Elder with us
    today, future Governor of California, I hope.
        I've got the 27th Governor of Oklahoma and former two-term
    Member of Congress with us, Mary Fallin-Christensen. I've got
    former--one of our other cofounders, former copresident of Fox
    News and the White House Deputy Chief of Staff of
    Communications for President Trump's first term, Bill Shine,
    with us. Of course, we have our brilliant and beautiful chief
    legal officer who's also my wife of 20 years, Anne Marie Ring.
        And two of our cofounders who could not be here today are
    former Secretary of HUD Dr. Carson and America's favorite
    patriot, country music icon John Rich. And hopefully he's
    tweeting right now talking about this. I want to also thank Mr.
    Wade Christensen, who's with us today from the great State of
    Oklahoma whose family previously owned the bank we purchased to
    launch Old Glory Bank and who are now co-owners of the bank.
        So as we heard today, lots of debanking going on. And
    there's two types the way I define it. There's the regulatory
    type of debanking which other folks much smarter than I am will
    talk about. And there's Operation Choke Point 1.0, 2.0, and
    there's probably some 2\1/2\ in there somewhere.
        And then there's participant debanking which is where the
    big banks debank you. So other folks will talk about the
    regulatory. But I just want to remind folks it cannot be a
    coincidence that in April of 2022 both the FDIC put out FIL 16-
    22 and the SEC put out SAB 121.
        There was clearly--those are big organizations. They were
    clearly working together to choke out not only banks acting as
    a custodian for other people's customers' crypto but to stop
    the demand deposit services of a bank. And if a crypto company
    can't provide that on and off ramp, you choke out the business,
    and that is what has happened in America.
        But the more interesting part of it is the participant
    debanking. And that is the voluntary effort by the big banks to
    debank Americans who disagreed with them on the issues we all
    know, whether it's COVID, the vaccines, or who supported Donald
    Trump, including his wife who is debanked as we know, and other
    conservative causes. And I don't know the First Lady, but I can
    assure you she is not a money laundering risk, and she was
    debanked.
        The founders of Old Glory Bank saw what many of us saw. But
    instead of sitting around and complaining about it, we all got
    together and created Old Glory Bank as a market response. We
    purchased a one-branch bank in beautiful Elmore City, Oklahoma,
    on November 30th, 2022. And just 5 months later, working hard,
    we launched the best digital-first banking service in America.
        In less than 2 years, we grew from 10 million in deposits
    to now over 170 million in deposits. We grew from 300 customers
    in Elmore City to now more than 50,000 customers across all 50
    States. We serve over 2,000 small businesses.
        We have respectfully better products than the megabanks.
    But our service is in Durant, Oklahoma, not offshore. Our
    customers love us and we love our customers.
        As part of our market solution, in less than 2 years, we
    had to do a 360-degree approach. We had to do our own version
    of cancel-proof PayPal called Old Glory Pay. We had to launch a
    cancel-proof version of GoFundMe called Old Glory Alliance.
        We launched Old Glory Cash-In so our customers can walk
    into one of 88,000 locations across America and deposit cash.
    You always talk about the friction point of banking online, how
    do you deposit cash. We solved that with Old Glory Cash-In.
        We are serving Middle America. And the one I'm most proud
    of is Old Glory Protect. We have a free $100,000 line of duty
    death benefit for our protectors, God forbid they're killed in
    the line of duty.
        John Rich and I show up at your house and give you $100,000
    if you bank at Old Glory Bank. And the protectors are a big
    group: law enforcement, military, firefighters including
    volunteer firefighters, and importantly, U.S. Border Patrol
    Agents.
        We all know debanking is wrong. But I believe a simple
    solution is a market solution, not regulatory with all respect.
    We've got to keep--make it easier for banks to start and run.
        And I'll close with this. In the last 2 years, 229 banks
    closed or were merged. Only 8 were started. We've lost 73
    percent of our banks in the last 40 years. It is not
    sustainable.
        We've got to make it easier to start and run banks. Thank
    you.
        Chairman Scott. Thank you, sir. Next, we'll hear from Mr.
    Aaron Klein, Senior Fellow at Brookings Institution. You are
    now recognized.

      OPENING STATEMENT OF AARON KLEIN, SENIOR FELLOW IN ECONOMIC
                     STUDIES, BROOKINGS INSTITUTION

        Mr. Klein. Thank you, Chairman Scott, Ranking Member
    Warren, Members of the Committee. Thank you for the opportunity
    to testify on the pernicious consequences of debanking in
    America. All of the views I offer here today are my own.
        Ten percent of American households are currently unbanked
    or were unbanked at some point within the last year. Not having
    a bank account adds significant costs, makes people less
    healthy, and makes it impossible to fully participate in
    America's increasingly digital economy. People are debanked
    because the cost of basic banking is too high.
        There are unpredictable fees. Banks don't offer the
    services they want. There's a lack of trust in banks, concerns
    about privacy, and problems opening an account due to
    identification or bad credit histories.
        Checking accounts are free for those who always have money,
    while those living paycheck-to-paycheck pay a myriad of fees
    that can easily reach over 500 dollars a year, making basic
    banking unaffordable.
        My written testimony illustrates how debanking harms
    consumers and businesses and enumerates ideas for reform. I
    want to highlight five proposals to combat debanking. First,
    require all banks to offer and credit unions to offer BankOn-
    style accounts. BankOn accounts are affordable, low fee, non-
    overdraft accounts that are wildly popular among consumers and
    are considered a best practice by the American Bankers
    Association. Why should any federally insured bank or credit
    union not be required to offer a best practice account?
        Two, reduce penalties and surprise fees that debank the
    financially vulnerable. Most of America's largest banks and
    many small banks and credit unions voluntarily reform their
    overdraft practices. According to my estimate, that will return
    5 billion dollars a year into the pockets of people living on
    the financial edge.
        But many did not. The CFPB's overdraft regulation
    recognizes the economic fact that overdraft is credit and
    treats it accordingly. That rule should be allowed to go
    forward. However, the rule erred in not--in exempting banks and
    credit unions under 10 billion dollars which includes many
    institutions whose overdraft practices ought to raise serious
    concerns.
        I'll mention one, Armed Forces Bank. They generate 92
    dollars of overdraft per customer compared to just over one
    dollar of overdraft per customer from Bank of America. How is
    that bank or any bank that generates a majority or totality of
    its profit year after year on overdraft, operating in a safe
    and sound practice? Regulators need to treat it as such.
        Three, we need to improve the design of the financial
    system to better serve working people. How can Amazon get
    anything to almost anyone's door faster than it takes two banks
    to transfer electronic funds? If America instituted real time
    payments when England did, people would've saved over 100
    billion dollars in overdraft fees, check cashing fees, and
    payday loan fees alone.
        Seventy percent of the people who go to a check casher have
    a bank account. Why are they at the check casher? Because the
    check casher gives them cash immediately. The bank doesn't.
        The Federal Reserve has been required by law to lower the
    amount of time a bank can sit on your check and they have
    ignored the law for 37 years, even when the past CFPB director
    called for modernization. Legislation introduced by Senator
    Warren and Senator Van Hollen, the Payments Modernization Act,
    would hardwire this into law and fix this problem and would be
    the most effective thing I can think to combat debanking by
    improving the quality of services banks offer to people living
    on the edge.
        Four, reform AML. When Congress established the $10,000 CTR
    limit in 1972, you could walk in and buy a fully loaded, brand
    new Cadillac in cash and not trigger that report. Today, Mr.
    Scott, I don't know if your used car would trigger a CTR.
        Chairman Scott. I'm not sure it would trigger anything, but
    thank you very much.
        [Laughter.]
        Mr. Klein. If you adjust that $10,000 limit for inflation,
    you'd be over $75,000 dollars today. Why is Congress--why are--
    what's the Government doing looking at things at such a
    different level?
        In addition, banks file 2.5 million Suspicious Activity
    Reports today, an increase of 10 times more than they did 20
    years ago. Banks spend a lot of money making SARs and they pass
    that along to consumers and small businesses. And the result in
    economic terms are low profit customers get pushed out, high
    profit customers keep their bank account.
        Look at Japanese baseball star Shohei Ohtani. He got to
    keep his bank account despite somebody fraudulently
    impersonating him and wiring 17 million dollars into the
    account of a bookie. That person kept their account, but plenty
    of low income people as Senator Warren pointed out, 11,955
    people lost their account.
        It has to do with the economics here. States need to--
    there's a cannabis banking issue that deals with SARs as well
    where I hope the Safe Banking Act which was a good step forward
    but needs to go further.
        Last, five, we need to reform these Do Not Bank list
    systems like CheX where you get kicked out for being just poor,
    not for fraud. The BankOn program has helped solve that, and
    that ought to be done across the board.
        I thank you all for holding this important hearing, and I
    look forward to answering your questions.
        Chairman Scott. Thank you, Mr. Klein. I'll start the
    questions, and then we'll have the Ranking Member. We'll go
    back and forth.
        Mr. Ring, the Biden administration took several actions
    that likely contributed to the debanking of crypto firms. In
    January 2023, the prudential regulators issued a joint
    statement urging banks to limit their exposure to
    cryptocurrency activities and associated risks. The FDIC IG
    disclosed that the existence of pause letters sent to financial
    firms between March of '22 and May of '23 asking them to pause
    planned or ongoing crypto-related activities and provide
    additional information.
        As I said earlier, we received validation today with Chair
    Hill's actions. The FCC issued Staff Accounting Bulletin 121
    which effectively preventing banks from holding digital assets
    in custody. These actions collectively help create an
    environment where banks became reluctant to work with crypto
    firms fearing regulatory backlash.
        You've worked to create a banking environment focused on
    being a home for so many Americans and businesses who have been
    debanked. I'm hoping you can share what your interactions have
    been like with our Federal banking regulators.
        Mr. Ring. Well, I'd like to say that I'm standing between
    the regulators in America, and I'm the only bank executive who
    is not intimidated by the regulators. And I definitely fly too
    close to the sun, but you've got to, to protect America.
        And what was really disappointing about FIL 16-22 that you
    referenced, Chairman Scott, is that on its face if you read it,
    it wasn't entirely unreasonable about safety and soundness.
    Unfortunately, the examiners took that to stop banks from even
    being in the on and off ramp. So if you're a legal crypto
    business, it's one thing that there could be some challenges
    holding customers tokens and keys.
        But to think you could not be that legal business' bank
    account was the real problem with FIL 16-22. And thank goodness
    it's been exposed. SAB 121, I don't know how that passed the
    laugh test.
        To think that if you're holding a customer's crypto that
    you've got to book that as a liability and then put capital
    against it is ridiculous. And thankfully, that's been
    rescinded.
        Chairman Scott. Thank you for that answer. Mr. McCauley,
    Anchorage Digital has the honor of being the only OCC-related
    federally chartered crypto bank in the United States. This
    stamp of approval from the OCC should provide your company with
    legitimacy and access to traditional banking services.
        However, as you detailed in your testimony, Anchorage has
    still struggled to access the traditional banking system
    despite you're a bank. This is unacceptable. Could you
    elaborate on Anchorage's debanking experience and the impact on
    your business operations, including making payroll for your
    employees and going beyond the 20 percent layoffs, devastating
    for any business?
        Our employees are very much like our family when you're in
    business. And I'd love for you to share in addition other
    issues and challenges that you face because they don't want you
    to be a bank.
        Mr. McCauley. Senator Scott, thank you for that question. I
    think the first effect that was so pernicious about the
    debanking that has gone on for the last several years has been
    the betrayal of the bargain that is the American experiment. We
    were taught growing up that we would have a fair legal system
    and a fair justice system that we could face our accusers.
        And so I would say the most devastating part of this to the
    crypto industry has been that betrayal of trust. And I think
    that as we look forward to the new Administration coming in and
    thinking about the path forward here, that is probably the most
    important thing to reestablish is this industry's trust in the
    reliability of the American banking system and the legal and
    justice system here.
        Chairman Scott. I would suggest it goes to the entire
    Government. Anytime you see the weaponization of Government
    against you or your industry, it makes you not just cautious
    but leery of the entire system itself. I wonder if you would--
    because your day-to-day interaction with so many crypto firms,
    how widespread is debanking in the crypto space?
        Mr. McCauley. So an anecdote I can share is I was speaking
    at a meet up of about 100 crypto founders in San Francisco. And
    just as a show of hands, I said, hey, who here has had trouble
    getting a bank account or has had debanking issues? All the
    hands in the room went up.
        And so to say this is pervasive is an understatement. It's
    been across the entire industry. Everybody has dealt with this.
    In fact, it became so commonplace to us that it became
    background noise. And we started to think about it. It was just
    assumed that if you're a crypto company, you would have trouble
    getting bank services.
        Chairman Scott. Unbelievable. Ranking Member Warren.
        Senator Warren. Thank you, Mr. Chairman. So debanking is a
    real problem, and we need to work across the aisle to solve it.
    I've got a stack of stories sent in by consumers and
    organizations that were debanked. I'd like to submit them for
    the record.
        Chairman Scott. Without objection.
        Senator Warren. Thank you, Mr. Chairman. These stories are
    from Muslim Americans, from cannabis businesses, from formerly
    incarcerated individuals, all of whom lost their bank accounts
    for no apparent reason. So I want to talk about what kind of
    recourse consumers have or don't have when they are debanked.
    Mr. McCauley, you testified that your company lost its bank
    account. When you tried to open a new one, dozens of banks,
    including some of the biggest banks in the country, turned you
    down. Which of the big banks refused to offer you an account?
        Mr. McCauley. Senator, I don't think it's productive to
    name individual banks. I believe the banks were the victims
    here.
        Senator Warren. OK. I just want to get it into the record
    because we have recourse. Did you get an opportunity to appeal
    the decision with any of those banks?
        Mr. McCauley. No, Senator. There was no room for discussion
    with the banks.
        Senator Warren. So, no appeals at all. That's unfortunate.
    The CFPB has accepted 11,955 complaints from consumers and
    organizations that were unable to open accounts or their
    accounts were wrongly closed just in the last 3 years. Do you
    agree that it's useful to have a database for this information
    so that we can identify trends, both the types of individuals
    or businesses that are targeted and also the banks where this
    is happening?
        Mr. McCauley. Senator, more data and more transparency will
    help.
        Senator Warren. OK, good. I don't think for a second that
    you should be locked out of our banking system. In many cases,
    it is wrong for banks to close accounts and threaten your
    ability to make payroll or pay rent on time without even
    providing an explanation so long as you're following the law.
    So Mr. McCauley, do you agree that people who are
    illegitimately debanked deserve some rules to protect them and
    an appeals process if they lose their accounts?
        Mr. McCauley. Yes, Senator. Something should be done to
    make sure that regulators do not do this again.
        Senator Warren. OK. And if banks are adopting policies that
    routinely debank people based on their beliefs or other
    illegitimate reasons, that's wrong. It needs to be stopped. Mr.
    McCauley, should consumers be protected from being debanked
    based on their political or religious beliefs?
        Mr. McCauley. Yes, Senator. Many individuals within the
    crypto industry were debanked, and I wish agencies had helped
    them.
        Senator Warren. And I presume you would carry that over to
    people who are debanked for other reasons as well----
        Mr. McCauley. Of course.
        Senator Warren. ----because of their beliefs. The CFPB has
    been on the front lines of combating debanking for years now.
    In 2022, they added debanking to the list of illegal practices
    that bank examiners should be on the lookout for. Last year,
    they wrote rules to crack down on debanking by payment apps and
    the third party data aggregators that the banks use to decide
    who to kick out of the financial system.
        Just last month, they proposed a rule to stop companies
    like PayPal that it considered fining users for certain types
    of speech on their platform. Mr. Klein, how would the CFPB's
    rules help put a stop to unfair debanking?
        Mr. Klein. Well, Senator, the CFPB is really on the
    forefront of looking out for consumers, making sure consumers
    have access to high quality and fair banking practices, as
    opposed to the bank regulators who are too often focused on the
    bank.
        I can think of five rules that the Bureau has: their
    contract rule; their UDAP or Unfair Discriminatory Practices
    Rule; their larger participant rule which would give them
    authority over places like Venmo and PayPal, which you just
    described; their data broker rule which includes credit
    reporting agencies like this CheX system that maintain a de
    facto do not bank list. Where, again, there's no economics to
    require those things to be accurate. It's simply a limited
    appeal process.
        And their overdraft rule, because when you ask people
    who've lost their bank account or are out of the banking
    system, ``Why don't you have a bank account?'' the number one
    reason is it's too expensive. And there are overdraft fees,
    which some estimates were up to $30 billion a year or more, are
    part of the larger reason people leave.
        So, those five rules the Bureau put out would all combat
    debanking in various ways.
        Senator Warren. Thank you.
        The CFPB is ready for this fight. And every day that the
    CFPB is locked out of doing its job, people are getting
    debanked.
        If the President is serious about stopping debanking, then
    he needs a strong CFPB as his partner to get this done.
        Thank you, Mr. Chairman.
        Chairman Scott. Senator Rounds.
        Senator Rounds. Thank you, Mr. Chairman.
        Well, I think, as many of you can see in this room, the
    different directions that we're talking about here in terms of
    the direction that we need to go. Some of us are interested in
    having the regulatory oversight actually be identified as the
    problem here versus suggesting that the big, bad banks are
    suddenly doing this all on their own.
        Let's walk our way through this.
        Mr. McCauley, it's good to see you again. I'm glad that you
    decided that South Dakota was the right home base for you when
    you started the State-chartered trust facilities that you've
    got. You shared with us the challenge that you had in getting
    bank.
        First of all, you are the first and only federally
    chartered crypto bank; correct?
        Mr. McCauley. Yes. That's correct.
        Senator Rounds. And Anchorage Digital is both a qualified
    custodian and has a conditional OCC bank charter.
        What's the nature of your accounts with the other banks?
    Checking accounts?
        Mr. McCauley. Basic checking accounts and holding our
    capital reserves. And then, further, we, as a condition for
    charter, hold cash for our clients at partner banks.
        Senator Rounds. So, any of that illegal?
        Mr. McCauley. Absolutely not.
        Senator Rounds. So, you ever overdraft?
        Mr. McCauley. No.
        Senator Rounds. So, in other words it's not a reason, it's
    not a case of a business reason why anybody would not do
    business with you, other than the fact that you were a crypto
    gen--or you would hold crypto in trust for other people, and
    that was a no-no?
        Mr. McCauley. That's right.
        And to put a very, a finer point on it, the bank that
    debanked us was actively trying to work with us more.
        Senator Rounds. But for some reason there appears to be a
    point at which they said we can't do this with you anymore. Was
    it because they didn't want to bank with you?
        The answer to that is no, that wasn't the case. What was
    the case?
        Mr. McCauley. No, not the case.
        Senator Rounds. What was it?
        Mr. McCauley. They wanted to bank with us. And many of the
    other banks that we reached out to after that bank account was
    closed also wanted to work with us. This was consistent across
    the board. The banks did want to work with us, were not
    discriminating against us, but they were worried about
    regulatory risks.
        Senator Rounds. So, you weren't doing an illegal activity
    like cannabis, which is federally illegal to do, and you
    weren't overdrafting, you were simply part of a legal industry
    that banks were told by regulators would be a problem for the
    bank. Is that correct?
        Mr. McCauley. That's right. I'm a, a bit of a square. I
    like rules. I like following rules. And so, we've always
    followed all the rules and regulations.
        Senator Rounds. Mr. Gannon.
        Thank you, sir.
        Mr. Gannon, you've represented financial institutions. Are
    you finding that these banks simply don't want to do business
    with people or is it a matter of for people that will follow
    the law, that aren't violating the law, and are not business
    risks of simply overdrafting their accounts. These banks want
    to look for business but, because of a regulatory environment
    that they have been in, they have been forced to decide whether
    they want to do business with certain types of industries,
    whether they were gun manufacturers, people that sold guns,
    people that did the terrible thing of being in the business of
    crypto activity, and so forth, were now suddenly being
    identified because of the type of business that they had, which
    was a legal business, by regulators who were coming down hard
    on them.
        What can a regulator do to a bank that doesn't want to
    comply with their demand, whether it be written or implied?
        Mr. Gannon. Senator, the regulators can do quite a bit. The
    banks are not making this up. They like to have customers, like
    all business like to have customers. Regulators have a lot of
    tools subject almost to their complete discretion.
        Senator Rounds. Supervisory in nature?
        Mr. Gannon. Supervisory tools.
        Senator Rounds. The auditors walk in and say, Guess what?
    You've got a problem. A CAMEL rating might change; correct?
        Mr. Gannon. Correct. Like----
        Senator Rounds. What happens if a CAMEL rating changes for
    a bank? Let's say it goes from a two to a three, what happens?
    Do they get bonded?
        Mr. Gannon. They don't. That's a very, very bad result,
    Senator.
        What happens is you're pretty much locked out of any
    ability to expand. Your what you pay for your FDIC insurance
    goes up. And there are a lot of other strictures on what you
    can do as you go forward and attempt to grow your business.
        So, that is, that really is the big hammer that the
    regulators have. And management rating can be almost
    everything. One of the--Anything.
        One of the things that's remarkable is if you look at the
    Fed's supervisory report from November of 2024, you will find
    out that they say two-thirds of the large banks in the United
    States are not well managed.
        Those same banks--and we have a chart on this in our
    written statement--those same banks have record levels of
    capital and liquidity. And I can tell you, Senator, they also
    invest enormous amounts in technology, in community
    reinvestment, et cetera, perhaps higher than any time in
    history. Yet, somehow two-thirds of them are not well managed.
        Senator Rounds. Thank you.
        Mr. Gannon. That doesn't make a lot of sense.
        Senator Rounds. Thank you.
        Mr. Chairman, I just really appreciate you taking the time
    to have this hearing. And I think the focus of what's happening
    to banks who want to do business with legitimate businesses,
    and the struggle they've had with a supervisory approach for
    the last couple of years which has put pressure on them for
    what they consider to be inappropriate types of legal
    businesses, this has got to stop.
        Thank you, Mr. Chairman.
        Chairman Scott. Thank you, Mr. Rounds. And thank you for
    the questions. They were illuminating. Senator Reed.
        Senator Reed. Thank you very much, Mr. Chairman. And thank
    you, all, gentlemen, for your testimony.
        One of the factors involved in this discussion is
    reputational risk because that's often the justification for
    the actions and rules of the Federal banking regulators. Last
    year we had a very positive discussion about the Safe Banking
    Act. And I've worked with my colleagues to come up with a
    compromise that would still allow reputational risk to be a
    factor, but to put up some guardrails with regard to its
    application.
        Mr. Klein, can you elaborate on the importance of
    maintaining reputational risk as a factor in evaluation, and
    also the guardrails that might be in place?
        Mr. Klein. Yes, Senator.
        I think the compromise that was worked out in the Safe
    Banking Act on reputational risk effectively addressed that
    problem. Look, at the end of the day all banks are a
    reputation-based business. Trust is the cornerstone of all
    banks.
        Consumers trust that the banks have their money. And when a
    bank loses trust, it has the possibility to have a run on it.
        So, the need to consider reputational risk is real and it
    is important. It is possible that it is abused, and you need to
    have guardrails on it. But it is absolutely a certain and
    important part of bank regulation and supervision.
        Senator Reed. Thank you.
        Mr. Ring, I know you understand this very well because in
    your offering circle or back in 2024 you've consistently
    pointed out the dangers of money laundering and terrorist
    financing. And one of the aspects of crypto, it's a rather new
    phenomenon, is that it seems to be a very often-used vehicle
    for financing of places like North Korea, financing of illicit
    activities.
        Does that put more pressure on you to be more stringent and
    regulate? And, also, as regulators to be more careful in
    watching what you do?
        Mr. Ring. I believe the Bank Secrecy Act, which is what
    you're talking about for AML--and by the way, for folks not in
    this room, the Bank Secrecy Act has nothing to do with secrets,
    and has nothing to do with your customer data. It is strictly
    about money laundering and those, and those rules that you're
    talking about.
        I am, I am not in favor of the amount of delegation law
    enforcement has done on banks with respect to these type of
    issues. They're real issues, but banks should not be on the
    front lines because what happens is that that, that is the
    Trojan Horse for banks to do whatever they want. Oh, it's AML,
    BSA issues. Or the regulators that come in and say you can't do
    crypto because of that.
        If you're checking out at a grocery store, does the cashier
    and the bagger have to let the police know you bought some
    chemicals? Of course not. And so, I believe it's the Trojan
    Horse and should be a small component of the issues you're
    worried about with crypto.
        Senator Reed. Well, again, I think the bank regulators are
    trying to react to a relatively new phenomenon. Crypto is about
    a decade in----
        Mr. Ring. Shouldn't take 10 years, respectfully.
        Senator Reed. No. But it's a situation in which looking
    from our perspective in national security on the Armed Services
    Committee, North Korea makes a lot of money through crypto
    operations. And a lot of these, as you point out in your
    offering circle is terrorist groups use it, too.
        So, I think there has to be a heightened awareness both in
    the industry and also within the regulators with respect to
    crypto. And that's a factor that's not common, that's not as
    prominent in other banking institutions that don't do crypto.
        Mr. Ring. I believe every bank has the same concern about
    AML and terrorist activities. And I don't believe that crypto
    is the overwhelming factor that, that the Bank Secrecy Act
    really which is preventing, is going to solve what you want,
    respectfully.
        Senator Reed. Mr. Klein, you have a comment?
        Mr. Klein. Yeah. I wish every bank felt the same way. I
    think one of the problems that we have in our anti-money
    laundering system is we've created an economic structure where
    the costs are very high. And the banks respond by saying if
    you're a low profit customer we don't want you because of the
    AML costs. But if you're a high profit customer, we'll just pay
    the AML fine.
        I mean, I can't understand how a foreign national was
    wiring $17 million in hundred-thousand-dollar increments--and I
    encourage you all to listen to the D, read the DOJ's filing and
    listen to the, to the audio that's been released of his
    interpreter saying, I'm paying $200,000 to this illegal
    bookie's bank account for a personal, for a car loan. And maybe
    there will be more.
        And that bank account was not closed.
        So, I think that there's a very different world going on
    between very wealthy people, very wealthy businesses, and banks
    who see AML as a fine and a cost. Some, not most. Not most.
        But what I'm saying here is that we have an AML system
    where the economics of it are not in line with the objectives
    of it, which are to use this information to catch criminals.
    We're reporting too much information that's not useful, but
    there's too much criminal activity where banks are being let
    off the hook too easily just to pay a fine.
        Senator Reed. Thank you.
        Chairman Scott. Thank you. Senator Tillis.
        Senator Tillis. Thank you, Mr. Chairman. Thank you, all of
    you, for being here today.
        Mr. Chair, when you were opening up I was thinking about
    why I knew what a 90-day note was when I was 14 years old.
    Because it kind of went like this:
        My dad did construction work. He had a relationship with a
    couple of agents, insurance agents. And when they had damage
    that was not of a major scale, that was my dad's work. And I
    was a 14-year-old helper that would be in the bank parking lot
    when my dad would go in to a banker in Nashville, Tennessee,
    that he had a relationship with and got a 90-day note.
        And that's what paid, that's what paid the bills for the
    project that ultimately put food on our table.
        We have all but overregulated those personal relationships
    out of business. My dad today probably couldn't get that 90-day
    note because he'd have some supervisor breathing down the
    bank's back about how could you possibly give this man money
    that's living paycheck to paycheck and trying to feed six kids.
        We are overregulating in a way that is debanking people de
    facto.
        Now, Senator Warren mentioned, well, people have been
    debanked because they bounced a check a couple of times. That's
    called a, that's called managing a risk. I'm not saying that
    they should not find a way to provide that person with help,
    but them having a consistent pattern of bouncing checks does
    not help in the long term. We need to figure out how to help
    them manage their finances, not force banks to carry that at-
    risk customer on their, in their portfolio.
        Now, if we talk about and then we also talked about, and
    we've got the cannabis business. Well, the last time I checked,
    the cannabis business is illegal at a Federal level. I, for
    one, think we should reexamine that.
        But we damn sure shouldn't do it by passing the Bank
    Secrecy Act which makes it default legal before we've taken any
    firm position here that provides the industry with clarity.
    Somebody wants to work on rules of the road, and do that and
    bank the industry in a cohesive, sustainable way that doesn't
    kind of turn around the fact that it's still illegal at the
    Federal level, count me in. Happy to do it.
        Now, I think we've got a lot of regulator-initiated
    debanking going on with this concept of reputational risk, Mr.
    Gannon. I think you've got people going into banks and, I don't
    know, these gun people may not be, you know, these unsavory
    people are--fill in the blank. Now, I will tell you, so I want
    your, I want your input on that, but let me tell you what I've
    told every GSIB CEO that's been in my office. And everyone has
    been, and their counterparts in Europe. I said, if you act like
    a politician, I'm going to treat you like a politician. You
    provide banking services, period.
        Now, if you adjudge as a CEO, if you adjudge that you want
    to do a bank that only banks blond-headed, blue-eyed people and
    there's a market opportunity for that and a growth strategy,
    knock yourself out. If you can prove to the investors and the
    shareholders in your entity that it is in the best interests of
    your bank and your underlying strategy to grow, fine.
        But we have clearly seen reputational risk being overused
    by bank supervisors, bank examiners, saying, well, maybe you
    want to move out of there. And it changes depending upon who's
    in the White House.
        I don't think that that's right in either case. Banks
    should be able to figure out what they can do to derive value
    and serve their customers.
        Can you give me some examples or your thoughts on whether
    or not, Mr. Gannon, you believe that a lot of, a lot of these
    debankings is a direct result of regulators kind of doing a
    wink and a nod: this is an unsavory segment to serve?
        Mr. Gannon. Senator, I do think that. And, and the reason
    is regulators have taken the term reputation risk and made it
    incredibly----
        Senator Tillis. It's overly broad. It's anything.
        Mr. Gannon. It's, it's, it's almost the definition of
    subjective. It's, it's not really tired or linked to anything
    that's objective.
        And one of the things that I can tell you, having sat in
    planning sessions for some fairly large banks, is it's
    impossible to plan against that. When you don't know what the
    terms are of what your regulator and supervisor want you to do,
    it's really difficult to come up with a plan.
        Senator Tillis. And the perverse consequence of all this
    stuff is it's costing banks more money, it's shutting down more
    market opportunities, and making it more difficult to continue
    to bank the people that just bounced a couple of checks.
    Because at some, at some point you're affecting the business
    plan, the underlying success of the business, and they have to
    close the aperture to the most profitable, most sustainable
    part of business.
        So, I just feel like we need to, we need to--I'm here to
    talk about the regulator-initiated debanking. I'm not talking
    about other behaviors where people lose financial services. We
    need to have a hearing and a discussion about that.
        But I would like anything you can provide for the record on
    some use cases of debanking that in your opinion was driven by
    regulator interaction. That would be very helpful.
        I'm sorry, I don't have more time. Thank you.
        Mr. Gannon. We'll do that, Senator.
        Chairman Scott. Thank you. Senator Warner.
        Senator Warner. Thank you, Mr. Chairman.
        I want to pick up where my friend Senator Tillis was on
    this question of reputational risk.
        I think it has been overused. I've been trying to push the
    banks to use the discount window more often before we add
    additional tools. That's out there. But the response is always,
    well, reputational risk.
        I do agree with Mr. Klein that banking is a reputation-
    based business. And if people start to lose confidence in that
    bank, they're going to move, whatever the regulator does or
    doesn't do.
        And that's why I've got to ask, rhetorically at least, and
    perhaps my colleagues, you know, the United States dollar, and
    U.S. Government, and the full faith and credit all buildup the
    reputation of the United States of America.
        Now, if any of your institutions suddenly let somebody into
    your payment system that had no background in banking, that had
    no understanding of money flows, but suddenly gets an ability
    without any screening to look at all of your customers'
    personal banking information, I believe that would cause
    reputational risk. And that is exactly what is happening in the
    United States Treasury at this moment in time.
        We don't know if the DOGE crowd there's one person maybe
    has a clearance, the others we have no fricking idea. But the
    ability--and we don't know for sure whether this is a read-only
    ability or read and write, which past the legalese means that
    person can potentially go in and alter code or manipulate
    payments. I say to my Republican friends, guys, can't we agree
    that the risk of the United States is worth protecting?
        And the idea that we've got people intentionally
    manipulating our payment system, we have no idea. And we're
    going to sit silently by?
        This isn't about efficiency, this is about the kind of
    payment system we're going to have in our country. If any
    financial institution let unscreened individuals into their
    payment book or into the private banking information about
    their customers, Mr. Klein, I believe their reputation would go
    straight to hell.
        Mr. Klein. Absolutely, Senator. I worked in the Treasury
    Department for almost 4 years with a Top Secret clearance; I
    was going nowhere near that.
        And as you point out, this is not about efficiency. You, if
    you wanted to make the Treasury system more efficient, you
    would move it to a real-time payment network. Should have been
    done years ago. You wouldn't just sit there and take read-
    access to look at every single payment the U.S. Treasury
    Department does. Any bank that did that to their customers
    would be in deep violation.
        Senator Warner. It is also the fact that the payment system
    in the Treasury, that's not where determinations are made about
    whether something is illicit or illegal, that is actually the
    subject matter expertise that resides at the agency that has
    oversight.
        Come on, guys, this is about the full faith and credit of
    the United States. It is about our reputation in the world.
    You're getting the same calls that I'm getting. They don't
    identify whether they're Democrats or Republicans. But these
    programs that may or may not be arbitrarily eliminated by
    somebody that we don't even know who they are? Efficiency, sign
    me up.
        Turning over the payment system to people that we don't
    have any idea who they are, or what their goal is, or what
    their mission is, where we can't even get a full answer whether
    they simply have read capabilities, or read and write, there's
    an enormous difference in those extra couple words.
        And I just, you know, Mr. Chairman, this ought to be
    something that we, as the Banking Committee, that are looking
    at the Treasury, we ought to jointly want that.
        You know, there's a 25-year-old that I read about in the
    news. I don't, I don't know the individual. I don't have the
    slightest idea if they've got security clearance.
        I will tell you this--Mr. Gannon, I was going to ask you
    something about crypto but I'm not going to be able to get to
    you. I look forward to working with Sam Lummis on how we
    promote innovation but don't overdo on the risk side. And I
    think, you know, we can, we can do much better than we've done
    so far.
        But I have to just tell you, you know, as somebody who was
    chair of the Intelligence Committee and now vice chair, and
    take that role as incredibly important, the notion that
    somebody maybe arbitrarily put out these payment flows, for
    something that looks kind of funky but they don't have any idea
    what it is we'll hurt our national security. Because candidly--
    and this is not classified--we fund things sometimes under a
    cover. We put out this information and the bad guys find out
    about this, people's lives are at risk.
        And I implore you all as experts, I implore my colleagues,
    this should not be a partisan issue. Let's get to the bottom of
    who these people are, what kind of clearances they have, and
    make sure that we don't put in further jeopardy the risk and
    reputation of the U.S. Government, which I believe is under
    immediate and imminent attack from these unsanctioned
    individuals.
        Thank you, Mr. Chairman.
        Chairman Scott. Thank you, Mr. Warner.
        Before I go to Mr. Kennedy, I do want to respond to your
    comment there, Mark. The Treasury just put this out:
    ``Importantly, the ongoing review of Treasury's systems is not
    resulting in the supervision or rejection--suspension or
    rejection of any payment instructions submitted to Treasury by
    other Federal agencies across the Government. In particular,
    review at the Fiscal Service has not caused payments for
    obligations such as Social Security and Medicare to be delayed
    or re-routed. To be clear, the agency responsible for making
    the payment always drives the payment process. Currently,
    Treasury staff members working with Tom Krause, a Treasury
    employee, will have read-only access''----
        Senator Warner. Mr. Chairman.
        Chairman Scott. Just----
        Senator Warner. Mr. Chairman, do you know--Mr. Chairman,
    can I, Mr. Chairman, I'd just like to. So, you are saying it is
    read-only and not read and write?
        Chairman Scott. That's what Treasury just said.
        Senator Warner. And do you know the identity of these
    individuals? Mr. Krause is a known quantity and he's got
    security clearance. The other individuals who've been reported
    in the press, do they have security clearance, sir?
        Chairman Scott. I'll just say this and----
        Senator Warner. Do you want that individual without
    security clearance to have access to all that information?
        Chairman Scott. I was clarifying that comment you made and
    wanted to simply say that under the Biden administration we had
    no clue who was doing what most of the time. Mr. Kennedy.
        Mr. Kennedy. Senator Warner is a reasonable man. Everybody
    on this Committee knows that. And he's a good man. And I
    understand he's interested in process. And I'm not saying that
    process isn't important. But if the United States of America
    has been taking taxpayer money and using it to produce a
    transgender opera in Colombia, now I want to know about it. And
    I'm glad to know about it.
        And it seems to me that that's the main issue with respect
    to all of this. And I look forward to talking further with my
    friend Mr. Warner about that.
        I mean, for 4 years under President Biden, as was his
    right, the topic of discussion in Washington was: Who needs to
    pay more in taxes? Who needs to pay more in taxes?
        That's no longer the main question. The main question is
    now, as it should be in my judgment, What the hell happened to
    all the money? And we're going to find out.
        Now, I need to get back to the subject. With the exception
    of Mr. Klein, whose testimony I enjoyed, I understand his
    position. He wants to let the CFPB run America's banks. And I
    appreciate that perspective. But, Mr. Klein, it's not going to
    happen in your natural lifetime or mine.
        Now, let me turn to the other gentlemen. What I hear Mr.
    McCauley, Mr. Ring, and Mr. Gannon saying is that some of
    America's banks have been discriminating, debanking customers
    because of their religious beliefs, because they support the
    Second Amendment, and/or because they hate fossil fuels.
        I don't want to go with all three of you, I've run out of
    time.
        Mr. Ring, is that what you're saying?
        Mr. Ring. Yes, sir.
        Senator Kennedy. Which banks?
        Mr. Ring. Well, I think it's been publicly reported that
    Bank of America has certainly picked and choosed when----
        Senator Kennedy. Who else?
        Mr. Ring. And Chase Bank has.
        Senator Kennedy. Who else?
        Mr. Ring. I think Citibank has.
        Senator Kennedy. Who else?
        Mr. Ring. I think Key Bank has.
        Senator Kennedy. I'm going to probably run out of names
    pretty soon, but I think the megabanks are.
        Mr. Ring. Old Glory Bank is not, of course. We love the
    Second Amendment and----
        Senator Kennedy. Well, then we need----
        Mr. Ring. ----fossil fuels.
        Senator Kennedy. We need to get those banks in here, Mr.
    Chairman. We need to get all those CEOs in here. Mr. Ring. I
    would agree.
        Senator Kennedy. Now, why--you, I appreciate your candor--
    why do you think, are banks doing this because they're scared
    of the regulators or are they doing this because the people
    running the banks are prosecuting their political beliefs?
        Mr. Ring. I think----
        Senator Kennedy. I mean, let me, when a bank, when a bank
    holds a seminar, taking up valuable employee time to discuss
    whether a man can breastfeed, are they doing that because
    regulators are leaning on them, or are they doing that because
    the CEO really thinks that is, that's subject to debate?
        Mr. Ring. I think it's definitely the latter. And I think
    it's also been on management----
        Senator Kennedy. What do you mean ``the latter''?
        Mr. Ring. It is not the regulators. I do not believe the
    regulators push the big banks to debank conservative causes.
        Senator Kennedy. You don't?
        Mr. Ring. I, I do not. I think it was their internal choice
    by these big banks.
        Senator Kennedy. Why?
        Mr. Ring. Well, why? The same reason by Big Tech pick and
    choose winners. I think big banks pick and choose winners that
    they care about.
        And that, and that's, that's why we need a market solution
    because you can't regulate that type of behavior without having
    unintended consequences. And now every time you get a customer
    application you've got to fill out five forms as to why you
    picked, did or did not pick that customer.
        Senator Kennedy. So, you think that that's the management
    of these banks that are just imposing their own politics on
    customers and, ultimately, ultimately to the detriment of the
    shareholder. Is that your testimony?
        Mr. Ring. Yes, sir.
        Senator Kennedy. Either of your two gentleman in my last 10
    seconds disagree with that?
        Mr. Gannon. I strongly disagree, Senator, yes. I've spent a
    lot of time with a number of banks who----
        Senator Kennedy. Who do you think it is?
        Mr. Gannon. I believe it's the regulators.
        Senator Kennedy. How about you, sir?
        Mr. McCauley. It's definitely the regulators. All the big
    banks wanted to work with crypto and were scared away from it
    by the regulatory apparatus. Senator Kennedy. All right. I'm
    out of time.
        Thank you, Mr. Chairman.
        Senator Van Hollen. I thank you, Mr. Chairman. Thank all of
    you for your testimony.
        Mr. Ring, you work hard to protect your customer-sensitive
    personal information, do you not?
        Mr. Ring. Yes, sir.
        Senator Van Hollen. And you wouldn't just turn it over to
    anybody who walked into your bank, would you?
        Mr. Ring. No.
        Senator Van Hollen. And, Mr. McCauley, I assume the same is
    true for you?
        Mr. McCauley. Yes.
        Senator Van Hollen. So, I do want to bring up this issue
    that Senator Warner makes, because what we are witnessing right
    now in real-time is Elon Musk going into the Department of
    Treasury and demanding access to highly sensitive personal
    information that could impact any American. The highest ranking
    civil service at the Department of Treasury resigned before he
    became complicit in turning over this information.
        So, I know that Chairman Scott had to leave, but I want to
    underscore Senator Warner's point, and I know that Senator
    Warren shares these views, that this Committee, which has
    partial jurisdiction over the Department of the Treasury, we
    should have an urgent hearing on this. This should be a top
    priority. I would hope all of our colleagues, regardless of
    party, would want to know what is happening to this incredibly
    sensitive information that's just been turned in, turned over
    to somebody who happened to contribute over $250 million to
    President Trump's reelection efforts.
        In my view it's a corrupt bargain. And I think we should
    have a hearing urgently to address that matter.
        A lot of people raid banks, but, you know, Elon Musk goes
    after the Treasury Department. It's a big heist of personal
    information. And in my view it's an abuse of power.
        I appreciate Senator--and by the way, a lot of the
    statements that have been made regarding the use of some of
    these Federal funds, whether by AID or other foreign aid
    programs, have been patently false. Made in one, some cases by
    the chief spokesperson over at the White House. Just been
    provenly proven false. And they haven't been able to provide
    any information to substantiate those claims.
        I appreciate Senator Warren's pointing out that CFPB has
    been on the front lines of trying to protect people against
    debanking, so it is ironic that many people who want to make
    sure that we prevent debanking are trying to get rid of the
    CFPB.
        Mr. Klein, I appreciate your statements regarding the issue
    of overdraft fees, and pointing out that for Americans who live
    paycheck to paycheck, and we're talking about tens and tens of
    millions of Americans, their lack of access to real-time
    payments is causing them to incur these huge additional fees. I
    think you said your estimate is $5 billion a year.
        And it's also in some cases resulting in getting them
    debanked. Is that correct?
        Mr. Klein. Absolutely, Senator. One of the ways you get put
    on this do not bank list is that your account is closed.
        Say you withdraw your account in good standing and you
    close it. But then the bank says, oh, for that last month of
    your account you didn't maintain a minimum amount, so you owe
    $10. And they send the $10 to your old address, but you closed
    you bank because you moved, and you never got the mail. Well,
    that $10 fee then becomes another $10 a month, another $10. And
    they write it off in the collections and your data gets put on
    this do not bank list because your bank account was closed in
    bad standing.
        And that's exactly how that process works.
        Senator Van Hollen. So, you referenced legislation that
    Senator Warren and I have introduced, the Payments
    Modernization Act. Could you talk about how this would address
    this very real problem?
        Mr. Klein. Absolutely.
        The Expedited Funds Availability Act of 1987 requires the
    Federal Reserve to make payments move faster as technology
    allows. The Fed has done nothing in 37 years to update that
    regulation. As a result, banks sit on your money.
        We can all agree in this Committee, and every American,
    that Friday was January 31st. If you were short on your rent,
    on you other obligations, you worked a second job, you got paid
    that Friday and you deposited your check, you took a picture of
    your check. I was on this Committee when we passed the Check 21
    Act that lets you deposit your check on your phone on Friday,
    the bank can sit on your money and it just became available
    yesterday.
        What happened between the 31st and the 4th? A bunch of
    bills got paid. The result of that: overdraft, overdraft,
    overdraft.
        Now, your legislation would force the Fed's hand. Even
    though the law says ``shall,'' not ``may'' but ``shall,'' and
    the Fed just ignores it. Your legislation would rewrite that
    law to mean that your money would have been available on the
    1st when your debits came out, and your overdrafts wouldn't
    have hit. And it would save people a tremendous amount of
    money.
        The Bank of England did this in 2008. If we did it then, a
    hundred billion dollars a year would have gone back to people
    from check cashers, payday lenders, in overdraft fees. It's the
    best thing you could do to reduce income inequality without
    raising taxes or increasing Government spending.
        And I can't understand how Amazon can get anything to your
    door faster than two banks can clear a check.
        Senator Van Hollen. Thank you.
        Thank you.
        Senator Hagerty [presiding]. Thank you, Mr. Chairman.
        I would like to welcome some Alabamians that are in the
    audience, in particular Kate Robertson, who is a senior in high
    school and is an outstanding star. I'm certainly proud to have
    her here today.
        Also just want to say thank you for holding this hearing,
    Mr. Chairman. It's clear and it's been no secret that our
    financial regulators have become increasingly politicized over
    the last 4 years. We have heard our ranking member talk about
    the number of complaints that have been made to the CFPB over
    the last 3 years and, yet, this Committee in the last 2 years,
    led by, obviously, one our Democratic counterparts, has not
    held a hearing diving into this.
        So, thank you, because this must stop. This is the United
    States of America and this, what's happening, is completely and
    totally unacceptable.
        Look, when you're prioritizing a social agenda or a
    political one instead of actually ensuring that people have an
    opportunity and access to the American Dream, we, we've got to
    call that for what it is. And, obviously, our large
    institutions play a vital role in our country and our banking
    system, but they need to stick to that banking, not politics.
        And so, Mr. Ring, what you testified here to today is
    incredibly alarming. And we need to get to the bottom of that.
        I also just want to point out something that my colleagues
    have to hear me say all of the time, and that is just how
    grateful I am for our community banks and credit unions in
    Alabama that serve our local communities and give people access
    to the American Dream and remember that that is actually what
    they're there for. So, thank you to them.
        I do want to get to the bottom and better understand what
    spurred this debanking and why certain industries and
    conservative-aligned groups have been targeted over others and,
    importantly, how we can prevent this moving forward.
        So, I want to start by quickly clarifying a few things for
    the record.
        The first Trump administration finalized a fair access to
    banking rule focused specifically on addressing this issue. Mr.
    Gannon, what happened to that rule?
        Mr. Gannon. That rule was revoked on January 20th, 2021.
        Senator Hagerty. Tell me who revoked that.
        Mr. Gannon. The President of the United States.
        Senator Hagerty. That's the day he was sworn in?
        Mr. Gannon. That's correct.
        Senator Hagerty. Uh-huh. And so the day he was sworn in he
    said we're not going to do this?
        Mr. Gannon. There were a number of rules that were revoked
    that day. That happened to be one of them.
        Senator Hagerty. Well, thank you, Mr. Gannon. Is the
    supervision of the reputational risk a directive from Congress
    or found anywhere in law?
        Mr. Gannon. Well, that's a little bit of a complex
    question. It certainly is found in, in law in the sense that
    Congress has directed the banking agencies to conduct
    supervisory activities. But the details about how that
    supervisory activity is conducted is almost entirely generated
    by the regulators themselves.
        Senator Hagerty. You mentioned earlier the subjective
    nature of that.
        Mr. Gannon. Correct.
        Senator Hagerty. Does the reputational risk have any real
    connection to the material safety and soundness of a bank?
        Mr. Gannon. Almost on no occasions that at least the
    literature has been able to come up is there a connection
    between reputational risk and some of the basic elements of
    banking: capital, liquidity, operations, and so on. There's a
    disconnect there.
        And, in fact, the regulators--and this is quite
    interesting, at least to me--the regulators fined stakeholders
    for reputational risk. And one of those stakeholders is
    themselves.
        So, it's a little bit difficult to argue with a regulator
    when they say you've got reputational risk----
        Senator Hagerty. Now, that's something.
        Mr. Gannon. ----because you're, because you're arguing with
    the stakeholder that owns that reputational risk.
        Senator Hagerty. Tell me, you mentioned earlier in your
    testimony about management rating.
        Mr. Gannon. Right.
        Senator Hagerty. And you said many times it has actually
    nothing to do with management. Can you, can you dive into that
    a little bit more?
        Mr. Gannon. Well, I'll go back, Senator, to what I just
    said. If you look at how banks really are resilient today and
    how they have higher levels of capital today, how they have
    more liquidity than ever, how they have invested, a very
    interesting statistic, in 2016, which is a baseline that this
    data comes from, which was a, not an easy year for banks--Mr.
    Tarullo was still the vice, kind of acting vice chair for
    supervision of the Fed--banks spent let's say $100 on
    technology in terms of compliance.
        Senator Hagerty. Uh-huh.
        Mr. Gannon. Last year banks would have spent $160 for the
    same activity.
        So, banks have, have poured money into technology, into
    compliance, et cetera. Now, are banks perfect? No. Do things
    slide through? Yes, they do. But I don't think anybody can
    doubt the commitment to invest in these sorts of things. And
    reputation risk doesn't have anything to do with that.
        Senator Hagerty. Thank you very much.
        And in my final few seconds, Mr. Ring, just to, just to
    level set here, what are the real world impacts to a small,
    legally operating business if they are denied access to our
    financial system? Because I know that you have seen that
    firsthand.
        Mr. Ring. Well, if you can't make payments and if you can't
    bank, then you can't exist in America. It has, it's happened in
    crypto, it's happened in the Second Amendment space, it's
    happened among conservative causes. You can't exist without
    banking.
        Senator Hagerty. Thank you for what you're doing.
        Mr. Ring. Thank you.
        Senator Cortez Masto. Thank you.
        I am sorry one of my colleagues had to leave, Senator
    Kennedy, because I do, I do need to address this. And I so
    appreciate my colleague Senator Warner bringing this up.
        You know, we can, and we should be, identifying waste,
    fraud, and abuse. I think we all agree about that. And we can
    do it, and we should be doing it as a Congress, but we should
    be doing it without giving a private, unelected citizen access
    to the Federal Treasury payment system that contains personal
    information of U.S. citizens.
        Now, I hear my colleagues all of the time invoking former
    President Biden for all the bad things. If he had done this, I
    know my colleagues would be the first to call it out. And would
    be, I would be with you. I would be with you.
        This is such an important issue for us to stand together
    on. And if we don't, who will? Who will?
        So, I just, I am frustrated, along with my colleagues on
    this. But let me get back to the issue at hand. Because I also
    want to address the overdraft piece, Mr. Klein.
        I know a vast majority of people who complained to the CFPB
    but also to AGs, I'm a former AG, I heard this as well, about
    losing access to bank accounts usually blame overdraft as the
    reason. Right?
        And we know that one of the areas of focus and enforcement
    around this, if not the attorneys general, then it is the CFPB.
    And we know the CFPB took action to prevent illegal, punitive,
    expensive overdraft fees. In fact, in November Navy Federal
    Credit Union agreed to refund more than $80 million to
    servicemembers and their families.
        By the way, servicemembers are the number one group that is
    always constantly taken advantage of in this area.
        And the credit union also paid a $15 million civil penalty
    for charging illegal and deceptive overdraft fees.
        So, Mr. Klein, you've been leading the call to end abuse of
    overdraft practices. We've heard you today. Can you talk a
    little bit more about it?
        And it's more than just somebody just, just a bad check out
    there; right? And everyone that says it, well, they're just,
    they're just writing bad checks and they should be held
    accountable. It's more than that.
        Can you talk a little bit about what we're talking here?
        Mr. Klein. Yes. So, it's about reordering your
    transactions. You swipe your debit card during the day and
    maybe you run out of money at the end of the day, well, there
    are banks and credit unions who go and reorder your
    transactions from the highest dollar amount to the lowest in
    order to maximize the number of overdrafts that you have.
        The State of New York just put out some new regulation
    prohibiting that practice of reordering your account.
        There's other things about systems of debits and credits.
    Look, our outdated payment system runs on this technology
    called a batch, which not to bore you, but think about your
    washing machine. You throw everything in, you hit a button, it
    all comes out clean at the same time. One of the big values of
    real-time payment is it goes piece by piece, laundry by
    laundry.
        When you do a batch, you don't know what comes out. Well,
    the question becomes when the batch is clean do we put in your
    credits first or do we take out your debits? And which order
    you pick, debits or credits, makes a big difference in the
    total quantity of overdraft if you post your credits before you
    put the money into your account. Right?
        So, that's another pernicious practice that we see. And
    this is how you see a bank like Armed Services generate $92 of
    overdraft per customer relative to other national banks that
    are around $1, $2, $5, $10.
        You say to yourself, how can Armed Service Bank get $92 of
    overdraft per customer? It's these types of tricks and trades.
        And you're right, Senator, that in my research I keep
    finding that you find these practices at military bases, you
    find these practices that co-locate in Walmart or seek out
    other things. Eight percent, 9 percent of Americans pay 80
    percent of the overdrafts. Those are very profitable customers
    for certain types of banks who try to bring them through the
    system.
        And the last point I want to make as it relates, Senator
    Tillis made that comment about, oh, you passed a few bad
    checks. Why? Why did the check bounce? Well, the check bounced
    because of this time delay.
        Other banks that have given people 48 hours to cure an
    overdraft have seen their overdraft numbers fall by 50 percent.
    This is some of the types of reforms that would occur if you
    moved to a faster payment system and you eliminated some of
    these checks.
        And, sadly, the prudential regulators over the last 4 years
    have done nothing to stop these banks and credit unions who
    rely on overdraft for more than 100 percent of their profit.
    They're giving safe and sound CAMEL ratings. I don't understand
    how their management has such a high CAMEL ratings because all
    they're doing is overdrafting people. They should be a check
    casher, not a bank.
        Senator Van Hollen. Thank you, Mr. Klein.
        Senator Ricketts. Thank you very much, Mr. Chairman. And I
    want to thank Chairman Scott and Ranking Member Warren for
    holding this hearing.
        And thank you to our witnesses today, Mr. McCauley, Mr.
    Gannon, Mr. Ring, Mr. Klein, for being here as well to talk
    about this important topic.
        What we saw over the last few years, the Biden
    administration weaponized Government at all different levels to
    be able to push its liberal agenda on the rest of the country.
    We saw it in things like having the EPA push EV mandates,
    Homeland Security ignored illegal immigration. We saw a number
    of different agencies do things, the FBI for example even
    identified Catholics as extremists and sought to put spies into
    the Catholic Church.
        All of this undermines people's faith and belief in our
    system of Government. And what we're talking about here now
    where we have regulators that are pushing their agenda does the
    exact same thing: it undermines the rule of law in our country
    if regulators start pushing an agenda of what they want to see,
    what kind of businesses you do business with, versus what
    you're allowed to do, versus just saying making sure we have a
    safe banking system that is complying with our rules and
    regulations.
        A legal business should not lose access to the banking
    system just because they deal in firearms, or crypto, or
    something like that because a regulator doesn't like that.
    That's just simply wrong.
        But that's what we're seeing, of course, out of the last
    two Administrations. It was mentioned earlier about Choke Point
    1.0 in the Obama administration. And firearms, you know, for
    example, that were disfavored were prejudiced against and tried
    to be forced out of the financial system.
        And I think it was you, Mr. Ring, who just said that if
    you're out of the financial system you cease to exist as a
    business.
        And then, of course, now more recently in the Biden
    administration it's been the crypto industry.
        And I've got to tell you this is an issue that's near and
    dear to my heart. I came from the financial services industry.
    We have the most transparent, liquid capital markets in the
    world because of proper regulation. Regulation actually got us
    to the point where we have these great capital markets. And
    it's at risk when we have regulators that are undermining the
    faith of that.
        We've got to make sure that we do not weaponize our
    regulators to push an agenda.
        Mr. Gannon, during Operation Choke Point 1.2 and 2--or 1.0
    and 2.0, did regulators exceed their statutory authority by
    focusing on vague metrics and reputational risk instead of
    safety and soundness?
        Mr. Gannon. Senator, the way I'd answer that is to say that
    the effect of Operation Choke Point 1.0 and 2.0 is that many
    small, perfectly legal businesses are no longer in operation.
    The people that ran those businesses lost their jobs, lost
    their bank accounts. I'm not sure what they're doing today. But
    that was a backdoor way to make those businesses illegal.
        And getting to the point that I made earlier, if the
    regulators wanted those businesses to be illegal, they had to
    come to you and ask. And they didn't. Instead, they just
    executed their own agenda without the approval from Congress.
        And that's what I mean by a distortion of the relationship
    between regulators and Congress. Their power comes from you, it
    does not fall from the sky.
        Senator Ricketts. So, did bank regulators evade the notice
    and comment rulemaking requirements of the Administrative
    Procedures Act by imposing requirements through formal guidance
    documents in both Choke Point operations?
        Mr. Gannon. Yes, they did, Senator.
        Senator Ricketts. And why do you think they were doing
    that?
        Mr. Gannon. Because notice and comment and, by the way, the
    Congressional Review Act, has the effect of shining a light on
    the activities that are afoot. You have to give notice. You
    have to take into account the comments. Critically, you have to
    do, if you're going to pass a rule under the Administrative
    Procedures Act, you have to do a valid cost-benefit analysis.
    And those sometimes can be difficult. Economists should run
    those; it's just simply hard.
        And, oh, by the way, rules that never got approved through
    the Congressional Review Act process have never taken effect.
        Senator Ricketts. So, in fact, to your point earlier, by
    issuing formal guidance they were purposely trying not to come
    to Congress or not to raise the attention of the public of what
    they were trying to do. Is that a fair statement?
        Mr. Gannon. I can't get into their heads, Senator, but
    that's the effect for sure.
        Senator Ricketts. Mr. Ring, your bank was one of many that
    was issued a consent order by the FDIC in recent years; is that
    correct?
        Mr. Ring. Yes.
        Senator Ricketts. Would you describe your relationship with
    your regulator to have been collaborative or more combative?
        Mr. Ring. I think it has gotten better recently. In fact, a
    great regulator at the FDIC, Joe Meade, who spent 30 years
    there, recently left, retired. Invested in our bank and he's
    now on the board. And I think that has helped.
        But they, they definitely do not make it easier to be a new
    and growing bank; right?
        Senator Ricketts. Well, I see my time's up, Mr. Chairman.
        But I do want to just wrap up by saying, again, my
    experience in the financial services field was that when you
    had regulators that had a relationship with the regulated
    community, that actually helped them do their job to find the
    bad actors.
        And we all have an interest in really bad actors that are
    in our industries. And that when you take an approach where you
    weaponize Government, it's actually bad for the regulatory
    scheme in general because players or, you know, companies who
    are good, that are trying to stay in business and actually
    follow the rules are discouraged because the regulators are
    acting in a political manner.
        So, thank you for indulging me there.
        Chairman Scott [presiding]. Senator Kim.
        Senator Kim. Thank you. Thank you to the four of you for
    coming on out. Mr. Klein, I wanted to just start with you. I
    thought you made some very poignant assessments about the
    Suspicious Activity Reports in particular. You mentioned about
    just, you know, millions of these every year that are being
    used. But as far as I can tell from your testimony, it doesn't
    seem like there is any feedback, any sense of are these useful.
    Is that correct?
        Mr. Klein. Correct. Banks are not judged on the quality of
    their performance. They are judged on the quantity. And the
    consequence is the bank has every incentive to file more
    without getting information as to the quality of it. This is
    how filings have increased tenfold in 20 years.
        In my written testimony, I cite some work that shows that
    the ability of it to lead to prosecutions for tax evasion, one
    of the primary purposes of AML, has been extremely thin.
        Senator Kim. And so we are seeing a situation where the
    banks are filing millions of these. You know, they are costing
    them a lot of money and time. But we are not certain whether or
    not--it doesn't sound like they are getting any real feedback
    in terms of whether or not those have been useful.
        And I think you cited, in fact, in terms of some reports it
    seemed like the IRS prosecutors may be used only a few hundred
    of some out of millions of different reports that come before
    them. Is that correct?
        Mr. Klein. It is correct. Three-hundred-twenty-seven
    reports started a prosecution on tax evasion out of about 27
    million. That's a piece from Nick Anthony at CATO. And let me
    just say, like, the way that I have come to analogize this is
    the thesis of the entire AML process is like as criminal as
    like a scuba diver swimming deep in the dark ocean in order to
    evade detection, and the money from the criminal activities are
    like the bubbles that float to the air.
        And the idea here is that you use the data that comes in
    SARs and other things to find the bubbles and go down. But in
    point of fact, all we are doing in the current process is
    blowing air into the system. I don't understand who is reading
    all of these SAR reports.
        And this gets to the point about State-licensed cannabis
    that was raised earlier. That is federally illegal. If the DEA
    wants to go in and shut down any cannabis company in the State,
    they can. But you don't need a bank report to tell you where
    the cannabis shop is. It's called Google Maps. It will work
    really well. Why are we forcing the banks to continue to file
    all of these things?
        Senator Kim. Because this is putting pressure upon the
    banks. You know, when we are talking about reputational risks,
    you know, these are some of the calculations that banks are
    making in terms of having to file these reports.
        One thing I wanted to ask you, you know, I thought you made
    a very convincing argument in terms of the currency transaction
    reporting, in terms of the lifting of that number that hasn't
    been lifted in quite some time. But I guess I wanted to ask
    with more specificity when it came to the Suspicious Activity
    Reports.
        Do you have more concrete reform proposals there that our
    Committee should be looking into as we are thinking about our
    next steps?
        Mr. Klein. Yeah, no, absolutely. So, for example, on State-
    licensed cannabis, right? If you're running a State-licensed
    cannabis business, you should be treated like other businesses.
    If law enforcement wants to deal with you, go to the State
    capitol, find where you are. Why you are being treated
    differently makes absolutely no sense.
        The second thing is let's be clear on what the priorities
    are for banks to file SARs. There are areas where I think more
    suspicious activity, like elder abuse, which has been the
    subject of another CFPB report, is one where you could be
    providing more information.
        But there is a whole host of different categories of
    activities. And I think what we need is a whole blue-sky
    approach where Treasury's Financial Crimes Enforcement Network
    and the bank regulators are brought before this Committee and
    the public to discuss a prioritization of what we are going
    after. Because in the 50 years we have been doing this regime,
    we keep adding more targets, never taking anybody off the list.
        Senator Kim. And I think that is right. And, you know, I
    would have to say, Mr. McCauley, when I was, you know, hearing
    your testimony and just--I am sorry for what you went through
    in that kind of capacity. And when we look at the reputational
    harm or reputational risk that banks are considering here, yes,
    you know, it certainly seems like this excessive amount of
    reporting, other things like that, are adding to it.
        And I think one thing I hope we can all agree on is, you
    know, having a greater sense of transparency across the board,
    but then also some sort of feedback loop, some process by which
    to try to appeal. Because it is not just on the SARs, but, you
    know, also the customers are unaware that something has been
    filed about them. And so there is just multiple layers of lack
    of transparency on that front.
        And, you know, I also want to just raise this, not ask a
    question, but Mr. Klein, also you showed how with CheX and
    other components, again, that sense of transparency is missing
    as well as that lack of ability to appeal. So it just seems
    like that is something systematic that I think this Committee
    can hopefully dive in deeper on. So thank you so much. And I
    yield back.
        Chairman Scott. Senator Banks.
        Senator Banks. Thank you, Mr. Chairman. Economy, Indiana,
    is a small town. Mr. McCauley , congratulations on your
    success.
        Mr. McCauley. Thank you.
        Senator Banks. It is really incredible, a fellow Hoosier to
    go on and do the same--the incredible things that you are
    doing.
        My question for you is, obviously what happened to you is
    wrong. It was disruptive. It didn't just affect you, but it
    affected a lot of your employees and your partners. Was there
    ever an opportunity for you to seek or recover any of the
    losses that occurred to you?
        Mr. McCauley. Senator, there wasn't any opportunity to
    recover. The way losing your bank account works is you spend a
    lot of time, you spend a lot of efforts, but there is not some
    sort of a recouping you can do there.
        We did appeal to our regulator, the OCC, and let them know
    that this was happening to us, that our bank accounts were
    being closed, and that we are having some disruption of
    services there. But unfortunately, they weren't able to
    necessarily help. They can't necessarily say positive or
    negative things about any particular bank, and so they weren't
    able to help us get banked anywhere else.
        Senator Banks. Can you quantify the loss to you and others
    involved?
        Mr. McCauley. So we were--we had a trading business that we
    were operating that was doing hundreds of millions in volume
    per month that went to zero because we were no longer able to
    bring on our clients' cash and bring that into our institution.
    Because of that, we had to part ways with some of our staff as
    I mentioned in my written testimony.
        Senator Banks. And I assume that it wasn't just really rich
    people who were affected by that? Common, every day, working
    class investors that were affected, too?
        Mr. McCauley. Senator, our bank serves institutional
    investors, many of which are creating the products that the
    retail investors of America use, for example ETFs. We custody
    for some of the ETFs that are now owned by a broad swath of the
    U.S. population.
        Senator Banks. OK. Let me ask this a different way. When an
    innovator gets hurt, it always benefits the incumbent player
    and the industry. Do you think that the big bank that debanked
    you had incentives to do that?
        Mr. McCauley. Senator, I actually don't think that they did
    that. I think that many of the large banks in the country were
    actually in active conversations with Anchorage to add crypto
    as an offering. So they were looking to maybe become crypto
    custodians themselves or expand in that business line, which
    makes it so clear that this was not something that they wanted
    to do.
        They did not want to debank crypto. Rather, they wanted to
    embrace crypto, but they were very suddenly forced to take a
    180 direction and go in the opposite direction, not just
    stopping some of their crypto activity that they were looking
    to expand into, but actually closing accounts.
        Senator Banks. The Biden administration often claimed that
    the crypto industry was a magnet for fraud and crime. But you
    testified that Anchorage met the same know-your-customer and
    anti-money laundering standards that every other bank does. Why
    do you think the Biden administration was so dead set on
    suffocating crypto currency?
        Mr. McCauley. Senator, I can't necessarily comment on the
    motivations. What I can say that if you look at the way that
    the BSA works within America, the BSA works in America via the
    banks. The banks are the ones that carry that out.
        So the very idea of kicking crypto out of the banking
    system was self-defeating because the way that we get
    transparency, the way that we get monitoring of an industry is
    to have it be integrated with the banking system. And so that's
    why I think the debanking was so wrong-headed and did not make
    any sense.
        Senator Banks. Mr. Gannon, when I think of debanking, I
    think of all of my services from the bank being taken away from
    me. But is there something in between? I mean, banks that might
    put holds on transactions or investments that we might not
    think of as debanking but would also be a similar type of
    politically motivated activity?
        Mr. Gannon. Senator, that's possible. The technology exists
    to do it, but it's usually more broad based than that. Just as
    an example, I happen to be aware of a vineyard where the wife
    of the vineyard owner happened to be an investor in the
    cannabis industry.
        The vineyard and the individuals that owned the vineyard
    all lost their accounts. They had nothing to do with the
    cannabis industry, but I guess it was a knock-on effect as far
    as the regulators were concerned because all those accounts
    went away.
        That's the kind of--unfortunately, it would be nice to
    think that the regulators work with a scalpel. But it's really
    usually a five pound sledge hammer and a chisel.
        Senator Banks. Very interesting. Thank you. I yield back.
        Chairman Scott. Thank you. Senator Warnock.
        Senator Warnock. Thank you so very much, Mr. Chairman.
    Before I begin my questioning, I want to reiterate the request
    Ranking Member Warren and my Democratic colleagues have made to
    the Chairman to hold an oversight hearing in this Committee on
    Elon Musk's dangerous access to the Treasury Department systems
    that control $6 trillion in annual payments to millions of
    American citizens, including Social Security, Medicare and tax
    refunds. I can tell you that the people of Georgia are not
    taking any comfort in the notion that this unelected
    billionaire has access to these systems.
        I think it is urgent that this Committee and the Senate
    Finance Committee have a hearing to look into this matter to
    protect Americans' private data, data that they are required to
    provide and is now in the hands of Elon Musk and 22-year-old
    interns.
        We are approaching the 2 year anniversary of the failures
    of Silicon Valley Bank, Signature Bank, and First Republic
    Bank, three of the largest bank failures in U.S. history. A
    review of Signature Bank's failures found that the FDIC, the
    Federal bank regulator responsible for making sure our money in
    the banks are safe, did not properly staff the team dedicated
    to the bank with regular job vacancies--regulatory job
    vacancies averaging 40 percent in the years leading up to the
    failure.
        Bank examiners are overstretched and overworked. And based
    on today's conversation, it is clear that banks are begging for
    more communication, more certainty, more clarity from
    understaffed bank regulators. The last thing you want in
    business is uncertainty, a lack of clarity.
        This is why I was frankly shocked by the FDIC's decision to
    withdraw job offers from more than 200 new bank examiners last
    week. Mr. Klein, you are an expert in bank regulation. Do you
    agree FDIC bank examiners are understaffed?
        Mr. Klein. Yes.
        Senator Warnock. And do you agree that this understaffing
    has consequences for bank examiners' ability to communicate
    with banks to provide regulatory clarity, especially when banks
    are dealing with newer businesses that offer complicated or
    potentially risky financial products or services?
        Mr. Klein. Absolutely.
        Senator Warnock. What I'm hearing is the Trump
    administration's decision to rescind job offers to bank
    examiners at the FDIC is going to make it less likely, less
    likely, that some businesses, including the ones that my
    colleagues here today are concerned about, can access the
    traditional banking system or that they will be well-served by
    it. Is that fair?
        Mr. Klein. Yes. One of my colleagues just talked about the
    difference between doing things with a scalpel and a five pound
    sledge hammer. And this hiring freeze is a really big sledge
    hammer.
        Senator Warnock. I agree with that. And not only did the
    Trump administration rescind bank examiner job offers, they
    also emailed current examiners and basically encouraged them to
    quit, which will only compound our staffing problems for all of
    these businesses.
        Mr. Klein, in addition to harming access to the banking
    system, what other risks may arise from understaffing our bank
    regulators?
        Mr. Klein. Well, I mean, people talk about the need to
    create new banks. New banks have to be approved. It's a
    charter, not a license. And you need people there to approve
    the charter. You need people to update your models. You need
    people to collect and promote data and information. And there
    is a whole host of things that could be slowed down by simply
    being unstaffed.
        In addition, the FDIC is a little bit like an ambulance. It
    comes in when a bank fails. We have had several bank failures
    this year already. And you need to have an emergency SWAT team
    who is ready to go in.
        The FDIC does a fantastic job of handling a failed bank. It
    closes Friday evening. Monday morning, insured depositors have
    full access to their money. That requires people. And it
    requires trained people, expert people, people with experience.
    Sometimes these things are more complicated, particularly in
    small town America where you can't just show up 30 people and
    sit in a hotel and not raise some concerns. And understaffing
    this puts our ability to handle failures so that people have
    access to their money immediately at great risk.
        Senator Warnock. So I think this is very important because
    there is always this sort of baked in assumption that having
    regulators is a drag on the business. But you are demonstrating
    through your testimony that understaffing these bank examiners
    is bad for business, bad for innovation.
        And everyone agrees that legal businesses should not be
    systematically excluded from the financial system. However, the
    way to do that is to hire and to empower regulators who can
    ensure banks are safe and sound and provide clear guidance to
    banks on permissible levels of risk.
        Revoking job offers for bank examiners and pushing these
    experts out of their jobs in the precipitous way that we have
    seen, especially over the last 2 weeks, it puts all of us who
    rely on banks to keep our money safe at risk, and it is a drag
    on the business. This is an issue that I look forward to
    continuing to work with this Committee on.
        Thank you so very much for your testimony.
        Senator Hagerty. Thank you, Senator Warnock. And Senator
    Cramer, thank you for letting me--well, you just stepped down.
    Thank you for letting me take your spot.
        Over the past 4 years, I have seen a shocking number of
    industries and individuals be denied financial services here in
    America.
        I recently spoke with a company in my home State that is in
    an industry that is often politicized but always lawful. Here
    is what has happened to them. They have been denied business
    due to ``reputational risk''. They have been prevented from
    expanding their credit facility. They have been denied
    insurance policies, and they have been denied the ability to
    renew coverage.
        These are shocking problems that we see here. And this
    entire constellation of problems exist at multiple levels.
    First, you have got partisan ideologues that actually operate
    within banks, public affairs divisions or their so-called
    reputational risk committees that are exerting their influence
    to choke off disfavored industries.
        You have got, externally, banks being pressured by
    political activist groups. You have got these shareholder
    proposals that are coming at the behest of a number of outside
    players that are particularly enabled by proxy advisory firms,
    which is another issue that this Committee will get at.
        And last, we have had activist regulators that have abused
    their supervisory authority. They have imposed their own policy
    agendas that were never authorized by actual banking statutes
    or by the Congress. Bank examiners' subjective assessments of
    risk are ripe for abuse by ideologically motivated supervisors.
        The banks themselves are unable to speak out about
    debanking because when regulators pressure them to do it, there
    are strict confidentiality agreements. There are requirements,
    I should say, that prohibit these banks from even mentioning
    the reasons for service denial. Clearly, the banks themselves
    are very concerned about regulatory retaliation.
        So whether this de facto debanking stems from either within
    the banks or within regulatory agencies, in both cases, we have
    unelected individuals that are dictating what kind of companies
    can exist and thrive in our Nation and with no directive at all
    from the American people or from their elected representatives.
        So Mr. McCauley, I would like to start with you. This
    morning, FDIC Acting Chairman Travis Hill released 175
    documents relating to its supervision of banks who are
    attempting to engage in crypto-related activities.
        These documents confirm that banks faced extraordinary
    resistance and actually directives from supervisors to pause,
    to suspend, to refrain from expanding all types of crypto or
    blockchain related activity.
        Mr. McCauley, have you seen us lose American companies and
    innovators to other jurisdictions as a result of the hostile
    posture of our Federal Government?
        Mr. McCauley. Senator Hagerty, thank you for the question.
    I have actually printed out one of the documents that came from
    the FDIC drop this morning. It is right there in plain letters.
    Quoting, ``We respectfully ask that you pause all crypto asset
    related activity.''
        This is not a suggestion. This is right to the heart of it.
        Senator Hagerty. Mm-hmm.
        Mr. McCauley. The FDIC was asking banks to pause their
    activity with crypto. The net effect of that, like you said,
    has been that a lot of the crypto activity has moved to other
    jurisdictions, other jurisdictions where people feel like they
    will get a fair shake, like they will get a fair opportunity to
    actually build their business. This has been damaging. Many of
    these kinds of businesses are businesses that we want within
    the United States, crypto businesses, crypto exchanges, and
    notably stablecoins.
        So I thank you for your introduction of the bill about
    stablecoins. I think charting a path forward here is very
    important to us. And thank you for your leadership.
        Senator Hagerty. Well, I think it's incredibly important.
    And this type of innovation that we like to see on American
    shores is being pushed offshore. Can you tell me who signed
    that memo that you are looking at right now?
        Mr. McCauley. This one is signed Eric T. Guyot, I think. He
    is the assistant regional director.
        Senator Hagerty. Whoever this person is, I have never heard
    their name before. They certainly aren't an elected official.
    Yet this person is taking on the authority and the
    responsibility to debank an industry here that has tremendous
    potential. So I think it is deeply concerning.
        Mr. Gannon, I want to turn to you very quickly. There are
    important parts of our BSA and AML regime that are susceptible
    to weaponization for political purposes. Under our current
    system, senior public officials and their families can be
    designated as politically exposed persons or PEPs. And once you
    are designated as a PEP, you think about it. Former Senator Sam
    Brownback was designated a PEP. It results in higher regulatory
    scrutiny and therefore, an increased chance of account closure.
        In your view, Mr. Gannon, how can our BSA and AML regime
    most effectively balance what are legitimate law enforcement
    concerns with the risks that unwanted account closures are
    going to occur with the--in fact the actual dampening effect,
    the chilling effect, that we have seen taking place? How do we
    balance that?
        Mr. Gannon. Senator, there are two things, I think, that
    can be done. Number one is I think the partnership between the
    banks and the regulators needs to get into the 21st Century.
    And there is much better technology that exists rather than
    sending armies of people to go around filling out SARs and
    filling out currency transaction reports.
        If you have better data, you will have better results. And
    if you have that result, that better result, then you can
    determine is somebody being debanked because, in fact, they are
    a risk, or are they being debanked because they may have some
    sort of association that the regulators find unpleasant?
        Senator Hagerty. Thank you. Senator Gallego.
        Senator Gallego. Thank you so much, Chairman and Ranking
    Member. Mr. McCauley, in your testimony about how Anchorage
    Digital Bank manages risk and identifies suspicious activity to
    comply with regulations. So how often would you say you detect
    potentially suspicious activity among your bank's clients?
        Mr. McCauley. Senator, we have active monitoring programs
    that look for suspicious activity. One of the things we're
    actually most proud about our systems is that we think they go
    beyond what traditional banks are able to do in that we look
    not at just point-to-point transactions, which are available in
    traditional banking, but because of the rich data that is
    available through blockchain systems, we are able to detect far
    more of that.
        Now our client base that we serve is primarily
    institutional investors. So this is not the place that is
    necessarily set up to have a lot of potential money launderers
    in there. But we do make sure that any suspicious activity that
    we do detect is detected and dealt with.
        Senator Gallego. And you go through the proper protocol
    filing? When you see something, everything else like that----
        Mr. McCauley. Of course.
        Senator Gallego. ----you abide by the regulations so it
    doesn't come down on you or your shareholders? Did you ever,
    because of just kind of the potential risk or feeling of risk
    within your own discretion just--or maybe it's just not worth
    the hassle, kind of choose to not open up a client or decline a
    client of any sort?
        Mr. McCauley. Absolutely, Senator. There are use cases that
    our bank is not well set up to support. There are client types
    or types of client activity that are not appropriate yet for
    the systems that we have in place. And so we do express some
    amount of judgment on that----
        Senator Gallego. Right.
        Mr. McCauley. ----on whether or not we can properly take on
    an account and handle the risks that may or may not be present.
        Senator Gallego. Or just the hassle that may come with it
    because then you have to communicate with Government, and it
    has to go back and forth, back and forth for something that may
    not have much of a marginal return on investment.
        Mr. McCauley. And, yes, I think this is a State-owned bank
    procedure.
        Senator Gallego. So it's important that we all think about
    this aspect, the promise of every bank and, you know, different
    regulators, you know, have different risk tolerances. And I
    think that's a very healthy thing for us to understand. But we
    should be very worried about kind of overcorrecting us on the
    other end that could also increase risk to the banking system.
    I think you are a good example of how to do it correctly, but
    others may not.
        Mr. Ring, in your testimony, it had to do with
    ``duplicative and overly burdensome'' regulatory burden--
    burdensome regulatory burden--it is redundant, sorry about
    that--during the 6 month approval process for Old Glory Bank.
    What specific processes were duplicative, and how would you
    propose we consider addressing these problems while still
    making sure our regulators preserve their risk-based approach
    to monitoring safety and soundness in the banking system?
        Mr. Ring. That is a great question. Thank you. So to put
    this into perspective, we bought a $10 million bank with only
    $3 million of loans in Elmore City. That is probably smaller
    than some bank accounts in here. And it took----
        Senator Gallego. Not me. I wish, to be honest.
        Mr. Ring. It took 6 months, three rounds of additional
    information requests, and 300 pages of submission and then an
    all-hands call. And we had to deal with the FDIC, the Federal
    Reserve, and then even on the all-hands call, we had the CFPB
    there.
        And respectfully, I have never talked to a regulator that
    was actually a banker, in all respect. Like if you deal with
    the FAA, they are former pilots. If you deal with so many
    organizations, they are actually the former business people. I
    have only dealt with the Federal regulators who, respectfully,
    were bureaucrats. And these are people that have never sat on
    the front side of a check. And I feel like they do not have the
    ability to apply judgment to some of these rules.
        Senator Gallego. Well, what specifically would you
    recommend then?
        Mr. Ring. I would, going forward, make sure that you hire
    at least half of all regulators with prior banking experience,
    who actually know the impact of their regulations.
        Senator Gallego. Any other?
        Mr. Ring. I would go back and find the last chairman of
    either the FDIC or the OCC that actually was a banker. I really
    think it is about that.
        And then, respectfully, I think they need to quit stepping
    over dollars to pick up pennies. If you think about the banks
    that failed in 2023, it was lack of liquidity, and yet they are
    focused on the minutiae of banks and missing the forest for the
    trees, such as loans and liquidity is what causes banks to
    fail.
        Senator Gallego. Right.
        Mr. Ring. Not, you know, respectfully, an AML policy.
        Senator Gallego. Thank you. And Mr. Klein, I think you have
    a different opinion.
        Mr. Klein. Yeah. I mean, Silicon Valley Bank didn't fail
    because of a lack of liquidity. It failed because of a core
    goal investment strategy in terms of its treasuries that it
    held.
        Mr. Ring. Except for the run.
        Mr. Klein. So----
        Senator Gallego. Mr. Ring.
        Mr. Klein. Right. The run occurs when you realize the bank
    is out of capital, and the first people come when you had a 93
    percent uninsured deposit because you are running a $250
    billion bank with four branches. It was not a regional bank. It
    was a tech startup bank.
        And part of the thing that frustrates me so much was it was
    bailed out. It's--the single largest depositor at Silicon
    Valley Bank was a crypto stablecoin company that had $3
    billion. And as an economist, I can't dream of a better natural
    experiment to understand the solvency of the stablecoin than
    the fact that on Friday afternoon, that Silicon Valley Bank was
    being closed under normal operations, which would have incurred
    losses on uninsured depositors, and that stablecoin went from a
    dollar to 87 cents on Saturday as people started to run. Then
    Sunday, the regulators bailed out, took all of our money,
    taxpayer money, fees that banks are going to charge back on
    overdrafts and other low income people, and bailed out $3
    billion back to that crypto, and its stablecoin went right back
    up to par.
        And so you see in this situation, is there is a connection
    in crypto and the banking system. What you see in this
    situation is that banks fail. And Silicon Valley Bank failed
    for a variety of reasons, but primarily because of its
    strategy, right? And I do agree with Mr. Ring on some of these
    concerns about the relationship between banks and their
    regulators. A CEO of Silicon Valley Bank sat on the board of
    San Francisco Fed.
        Chairman Scott. Thank you so much. We are going over to
    Senator Moreno.
        Senator Moreno. Well, thank you. Thank you, Chairman, for
    the time for the hearing. I think it is very timely.
        I think one of the things that I would like to say at the
    beginning, especially for people watching this, is this can be
    a very clinical conversation. We are talking about debanking.
    But the reality is you have entrepreneurs that are absolutely
    getting devastated by these policies.
        I think it is hard for some of my colleagues who have only
    been maybe attorneys or career politicians to know what it
    feels like as an entrepreneur to chase a dream and have that
    dream completely crushed, not because you had a bad idea, but
    because you had a Government that was looking out for itself
    and not looking out for you. So let me just say that from the
    beginning.
        Let me start with you, Mr. McCauley. What type of
    cryptocurrency did Al Capone use?
        Mr. McCauley. I would say that primarily the privacy coin
    known as the U.S. dollar.
        Senator Moreno. Got you. So I will look that one up and see
    if we can ban that one. How about Pablo Escobar, my fellow
    Colombian who gave a lot of reputational risk to fellow
    Colombians in what he did. What kind of crypto did he use?
        Mr. McCauley. I don't think he used any crypto.
        Senator Moreno. Got you. How about Meyer Lansky?
        Mr. McCauley. I am not sure.
        Senator Moreno. There was some comments about dictators in
    North Korea being powered by crypto. How about Ferdinand
    Marcos? What was his crypto currency of choice?
        Mr. McCauley. He did not have one.
        Senator Moreno. Joe Kennedy?
        Mr. McCauley. He did not have one.
        Senator Moreno. OK. Got you. So maybe money laundering
    wasn't invented by digital currency. Would that be fair to say?
        Mr. McCauley. Very fair to say.
        Senator Moreno. OK. Let's move on to this topic of--Mr.
    Gannon, by the way, your bank helped me start my business. So
    let me just give that little disclaimer up front. I appreciate
    that your former chairman----
        Mr. Gannon. I didn't know that, Senator.
        Senator Moreno. Mr. Fish was very helpful so let me just
    get that conflict out. I subsequently sold all of my businesses
    so I have no conflicts. But let me just say this, how much of
    loans do you just automatically forgive? I was a really good
    client. I was a really good client, made payments. When could I
    call you and ask you to forgive my loan?
        Mr. Gannon. I don't believe you could do that, Senator.
        Senator Moreno. Got you. So I am curious, because there was
    a conversation from one of my fellow Senators earlier about the
    rogueness of the Trump administration. And yet Joe Biden
    illegally, according to the Supreme Court, forgave student
    loans. And I remember that outcry, that need for an immediate
    Senate hearing on why we were not forgiving, you know, not
    chasing--why we would forgive student loans.
        Now maybe my Democrat colleagues think it is great that
    somebody becomes a gender studies major at Brown and racks up
    $200,000 in student debt. But I had technicians working for me
    that racked up thousands of dollars in tool loans that the bank
    wasn't really--so what is wrong with a technician that a gender
    studies major should get their loans forgiven and why aren't we
    seeing outrage on that?
        Mr. Gannon, have you ever heard of such a thing as loan
    forgiveness from banks? And please give me the name of that
    bank.
        Mr. Gannon. I don't have a name for you, Senator, but what
    I can say is some of my best friends at the banks where I have
    worked were credit risk analysts. And they look very hard at
    each loan, and they analyze the credit. And if we make the
    loan, we expect you to repay it.
        Senator Moreno. Well, that seems like an impossible
    standard. So let's move on, Mr. Ring, to you on this topic of
    regulation.
        It seems like there is a debate in this room of who has
    caused debanking. The good news is we agree that there is
    debanking. I think that should be the first headline. Not so
    long ago people were denying it. Right? So we have agreed on
    that. That is an incredible accomplishment of the 119th
    Congress. We have reached that conclusion.
        So the question becomes why and who is responsible? Now, in
    your mind, do you think that there is--is it easy for a small
    community bank, let's say for example in Montpelier, Ohio, to
    compete with JPMorgan Chase or Bank of America?
        Mr. Ring. It is almost impossible. I find that about 75
    percent of our time is spent serving regulators and only 25
    percent serving customers. And when you are on small margins of
    a community bank, you cannot compete with the big guys easily.
    We are working hard at it, but it is very hard.
        We have the same regulations as the big bank, but yet we
    have less people and less money.
        Senator Moreno. So you don't have 2,000 lawyers at your
    beck and call?
        Mr. Ring. Unfortunately, I am both the lawyer and the CEO
    along with my wife. So we----
        Senator Moreno. Probably H.R. also.
        Mr. Ring. She is. And marketing.
        Senator Moreno. All right. There you go. And Mr. Ring, I
    actually applaud your testimony around helping working class
    Americans that are getting crushed by banks. Do you think it is
    fair to say that a lot of people know somebody or have
    themselves been screwed by banks? I think that's fair to say.
    And I appreciate that you are doing that.
        But I think it is competition that ultimately makes that go
    away. Don't you think like if there is just a lot more banks, a
    lot more choices, don't you think that is the best elixir?
        Mr. Klein. So America has almost 10,000 banks and credit
    unions. I think there are some serious structural problems.
        Senator Moreno. How many did we have 10 years ago?
        Mr. Klein. We had more, Senator.
        Senator Moreno. How many did we have 4 years ago?
        Mr. Klein. We had a lot more because you couldn't bank in
    multiple States.
        Senator Moreno. The competition has dropped.
        Mr. Klein. If you want more banks----
        Senator Moreno. So competition has dropped dramatically. So
    let me just end with this, and I hope my colleagues understand
    philosophically as a business guy, the most greedy organization
    on the planet is the Government. You pay your taxes, Mr. Klein,
    1 day late, what do you get paid--what do you pay, like a $5
    overdraft fee? No. You get late charges, interest that would
    make the mafia jealous.
        So let's just understand that the reason that the
    Government is so damn greedy is because there is no competition
    in Government. We need more competition in banking. That will
    fix this.
        Chairman Scott. Thank you, sir. Senator Alsobrooks.
        Senator Alsobrooks. Thank you. First of all, thank you to
    Chair Scott and Ranking Member Warren for hosting today's
    hearing. And I want to thank all of our witnesses as well for
    your participation.
        I can say I agree with all of the others who you have heard
    today who believe that we should both be expanding access to
    credit and capital for all Americans and that we are concerned
    about making sure that we keep our financial system safe as
    well from criminals and fraudsters and scammers. And I happen
    to believe we can do both at the same time.
        And so I have--I also would like to say that Mr. McCauley
    and Mr. Ring, you have both spoken about the need to protect
    the integrity of our financial system from politics. And I have
    to tell you that I could not agree more. And so these should be
    fairly easy questions that I have just for both of you.
        You both run businesses that depend on maintaining the
    trust of your clients. And so my question is would these
    clients trust you if you shared their most sensitive financial
    information with someone outside your bank and without their
    consent?
        Mr. McCauley. Senator, no, they would not trust us if we
    shared that information.
        Mr. Ring. No, Senator.
        Senator Alsobrooks. And so I ask as well, should an
    unelected billionaire be snooping on Social Security payments,
    say for example to my elderly parents? Would you agree that
    that was wrong?
        Mr. Ring. If you are talking about Elon Musk, I believe the
    unintended consequences of that is probably offset by trying to
    save taxpayers' money. And we haven't found a better way to do
    it yet.
        Senator Alsobrooks. And so you believe that your clients
    and other elderly people who find someone snooping around in
    their Social Security payments that they would be OK with that?
        Mr. Ring. I don't know Elon Musk, but I don't think that is
    what they are doing. I think they are looking at actual
    taxpayer monies going out the door.
        Mr. McCauley. Senator, if we hired an external auditor to
    come and look at our books to make sure that we were doing a
    good job of being fiscally responsible, I think our clients
    would welcome that.
        Senator Alsobrooks. And you think they would be comfortable
    with doing that--someone doing that who is outside of your bank
    structure? Say, for example, could I do that and look at your
    clients' information?
        Mr. Ring. Senator, going through the right process and
    procedures for hiring and bringing that auditor in would be
    extremely important and making sure they had direct, careful
    access to the data would be important.
        Senator Alsobrooks. So I would just say, I would echo
    Senator Warren and Senator Van Hollen's sentiments on the
    seriousness of this. And I really hope that our business
    leaders will have the courage to speak out about a practice
    that I can tell you I know you would never allow for your own
    clients.
        And so my next question is for Mr. Gannon and for Mr.
    Klein, there have already been studies on how banks and bank
    regulators can better balance the need for safety and soundness
    with financial inclusion.
        So for example, a 2023 report from the Treasury Department
    examines circumstances where financial institutions
    indiscriminately end relationships with broad categories of
    people in the name of mitigating risk.
        That report demonstrated that unfair debanking often
    results in less financial inclusion, less fairness, and
    ultimately consumers and small business owners are being pushed
    toward less safe and less affordable financial products and
    services.
        And that 2023 report recommended that financial regulators
    promulgate rules that promote a supervisory culture that
    balances legitimate risk, mitigation, and strategies that
    include financial inclusion.
        So Mr. Klein, as far as you are aware, have regulators
    adopted this 2023 recommendation?
        Mr. Klein. No, they have not. Regulators push banks to use
    systems like CheX and other do not bank lists for BSA, AML, for
    other things, for other types of risk platforms. And they do
    not adopt this. And I have been extremely disappointed at what
    the Prudential regulators have done.
        This BankOn movement has done a much better job in my
    opinion of trying to get a better screen to let folks in, folks
    who are not fraud risks. I am unaware of anything in the BankOn
    program that has a greater risk of fraud than any other type of
    account. And so I've been--from my experience I have seen too
    little adoption of alternative ways to bring people into the
    system and too slow adoption by regulators to do something
    different.
        Senator Alsobrooks. Thank you. And just one final question.
    The Community Reinvestment Act is a law that encourages banks
    to meet the credit needs of underbanked communities, especially
    low and moderate income neighborhoods. And this law requires
    banking agencies to assess banking institution's records of
    meeting the credit needs of its community.
        So I just want to ask quickly, Mr. Klein, how can
    supervisory debanking make it harder for banks to meet their
    community reinvestment obligations?
        Mr. Klein. So I struggle because a lot of these overdraft
    predator banks I have seen have gotten outstanding Community
    Reinvestment Act from their regulators who keep giving them a
    passing grade even when the bank loses money on every element
    of its business model other than overdraft. So I have seen some
    deeply problematic practices.
        Senator Alsobrooks. Thank you so much.
        Chairman Scott. Thank you, ma'am. I will turn to Senator
    Cramer.
        Senator Cramer. Thank you, Mr. Chairman, for having this
    important hearing, Ranking Member Warren, as well, for your
    leadership and congratulations to both of you. The title looks
    good on both of you. And thank you to our witnesses.
        I have to just state this hair-on-fire outrage by our
    Democratic friends over a successful businessman giving his
    time away from his business, I might add, to look at the books
    of the Federal Government to identify waste, fraud, abuse, and
    inefficiencies is some sort of a crime while Mr. Ring's bank
    has never met a regulator that has a business background, or a
    banking background. The irony is really quite rich. I think we
    should have a few more business people looking at our Federal
    books.
        That said, thank you all for being here. My main interest
    in the debanking discussion, and I am interested in all of it,
    and I think both sides have brought up a lot of interesting
    issues. But it's not so much the individual that I am
    interested in, or even the individual company, but rather the
    categorical discrimination against large swaths of businesses,
    entire industries of businesses, constitutionally protected
    industries, legal industries, I find frightening.
        And I just want to reconcile, at least in my own mind, the
    different answers that the three of you gave to Senator Kennedy
    about which came first. Is this a problem with the regulators
    or is this a problem with the bank presidents, to which I would
    say yes.
        The precursor to the regulators, quite honestly, and the
    regulations--the precursor to this whole debanking thing was
    this bizarro ESG movement in corporate America. And that was
    happening before the regulators thought, ``Hot dog, we got
    another issue we can, you know, shove at these guys.''
        So whether it's--I've talked to many of the bank presidents
    who very much support the legislation that me and 40 of my
    closest friends so far have introduced, the Fair Access to
    Banking Act, which doesn't require, by the way, a bank to do
    anything, but it does prohibit them from categorically
    discriminating against legal industries.
        And the reason some of the bank presidents who have never
    dared say it out loud tell me they support it is because they
    want this burden removed from them. They want this political
    pressure from their 30-year-old staff or the regulator, you
    know, that they fear or the political movement of the day or
    the activist investors that are trying to impose their values,
    they want that removed from them. I am just saying let's not
    discriminate against large industry.
        And so I guess I would just ask each of you, what is your
    sense of a bill like a Fair Access to Banking Act, that again,
    doesn't require anybody--it is not saying you have to bank this
    industry. It says you are prohibited from discriminating
    against them. Does this seem like a radical idea?
        Mr. Ring. Well, if I could go first.
        Senator Cramer. Sure.
        Mr. Ring. I think the regulators have pushed debanking of
    industries, which you are talking about, I think midlevel
    executives pushed debanking of individuals for political
    causes.
        Senator Cramer. Sure.
        Mr. Ring. And my worry is, Senator, with a good intentioned
    bill like that, you would have to prove somehow that we
    followed the law. And so every time a relationship didn't work
    out, there would have to be some type of reporting.
        And so I actually respectfully think the free market is
    always the best way to solve these problems. With more banks,
    let banks bank where they want. If a pro-life bank wants to
    exist and not bank Planned Parenthood, let them because there
    is a bank that would love to bank Planned Parenthood.
        Senator Cramer. But if you were going to discriminate
    against large industries, should you be able to be insured by
    the Federal Government?
        Mr. Ring. Well, that's a great question. Because what is
    unfortunate is the regulators were doing this through policies
    and guidelines as we have already talked about. Like digest
    those, you know, FIL 16-22 and SAB 121 and that is how you stop
    it, is holding those individual regulators accountable, I feel.
        Senator Cramer. Mr. Gannon.
        Mr. Gannon. Yeah, Senator, if I could respond to that by
    simply saying that what needs to be done consistent with the
    act that you have introduced is simply that there is more
    transparency.
        Senator Cramer. Yes.
        Mr. Gannon. And there is more notice----
        Senator Cramer. Yes.
        Mr. Gannon. ----when these kinds of decisions are made. And
    one of the--there has been a long sort of volume of Executive
    orders coming out of the White House. But one of them revived
    an Executive order from 2019 called 13892. That Executive order
    gives more due process to folks who wish to contest the actions
    of regulators than the due process clause itself allows.
        Senator Cramer. Well, maybe a law that puts that in statute
    would be better.
        Mr. Gannon. Correct.
        Senator Cramer. My time is up, Mr. Chairman.
        Chairman Scott. Thank you, Senator Cramer.
        Senator Cramer. Thank you both.
        Chairman Scott. Senator Lummis.
        Senator Lummis. Thank you, Mr. Chairman. Thank you, Ranking
    Member. And I think that today was the first time I have ever
    heard the term hot dog used in testimony. And I so appreciate
    that from my colleague from North Dakota.
        Mr. Gannon, it is a pleasure to see you here today. I want
    to thank you for everything you have done for the State of
    Wyoming in the last few years. I just want you to know that I
    am personally grateful. And I am going to start with you. In
    your legal opinion, what is reputational risk?
        Mr. Gannon. That would be very difficult to define,
    Senator, because it really has no definition. It is something
    that is, as I said earlier, it is malleable. It can be
    reinterpreted. It is in the discretion of the regulators.
        So what is reputation risk today? It might be something
    different tomorrow.
        Senator Lummis. Does it give bank examiners license to
    censor viewpoints or base regulatory decisions on someone's
    subjective viewpoint of what is a controversial comment?
        Mr. Gannon. It can.
        Senator Lummis. Well, let me show you that it does. So here
    is this quote from an internal excerpt. It is a confidential
    Federal Reserve Implementation Handbook on account access. It
    requires that Federal Reserve staff consider whether a person
    has made a ``controversial comment'' in making decisions about
    access to the payment system. And of course, access to the
    payment system is a defining feature of a bank, is it not?
        Mr. Gannon. Correct, very much so. Without that, a bank is
    vault.
        Senator Lummis. So is it dangerous for the Fed to serve as
    judge and jury on a particular banker's speech?
        Mr. Gannon. Senator, I am kind of absorbing that still a
    little bit because it is really quite unusual. I have never
    seen anything like that before. But my immediate reaction is
    number one, it sort of proves out the comments I have been
    making about the subjectivity around reputation risk because,
    who is to say what is controversial and what is not
    controversial? That is number one.
        Number two, it is chilling to me that it is possible that
    access to the Federal Reserve payment system might be dependent
    on whether the applicant was engaged in some sort of
    controversial commentary or--now I can see it, or activities.
    That is the kind of stuff that is--that is the kind of thing
    you see in countries that appear on OFAC lists.
        So I don't see how it has any place in assessing the
    capabilities of an institution to have access to the Federal
    banking system. We don't want to be in a place where free
    speech is chilled because there is a concern that I might not
    get access to banking services.
        Mr. Klein. I agree very much, Senator. And I have been very
    deeply concerned by the Kansas City Federal Reserve precluding
    places like the credit union in Colorado from accessing the
    payment system. And that chart puts my hair on fire.
        Mr. Gannon. If I might add to that, by the way.
        Senator Lummis. Yes, Mr. Gannon.
        Mr. Gannon. I believe in litigation involving an
    institution in Wyoming, Custodia Bank, I believe, if I recall
    correctly from the oral argument, the position of the Federal
    Reserve is that the Federal Reserve Bank of Kansas City has
    complete and unfettered discretion as to whether or not they
    allow access to the payment systems. That is a lot of power.
        Senator Lummis. Thank you, Mr. Gannon. And that is a
    concern of mine. I know this is hard to see. I couldn't see it
    from where you are sitting.
        Mr. Gannon. I can see it now.
        Senator Lummis. OK. Let me read it to you all. This, again,
    is an internal memo within the Fed. It says, Reserve Bank staff
    generally should consider the conduct of the institution and
    its leadership and whether association with the institution
    poses undue reputational risk to the Reserve Bank.
        Is the institution's leadership associated with
    controversial commentary or activities? What is a controversial
    comment or activity? What is that?
        Mr. Gannon. Senator, I have no idea.
        Senator Lummis. Is it in the eye of the beholder?
        Mr. Gannon. It's completely in the eye of the beholder,
    yes.
        Senator Lummis. Mr. Ring, what is a controversial
    commentary or activity?
        Mr. Ring. Well, considering the things I have said about
    pro-American causes and the flag, I feel like that was written
    for me.
        Senator Lummis. Mr. McCauley.
        Mr. McCauley. It appears to be a tacit attempt to hold back
    speech that is considered undesirable.
        Senator Lummis. And thank you. What I would call this is
    hard proof of Operation Choke Point. And it has now been
    discovered by Congress. Thank you, Mr. Chairman. I yield back.
        Chairman Scott. Thank you, Senator, very much for your
    thoughts and your comments. Thank you to each of the witnesses
    for participating in today's really important hearing. More to
    come, by the way. This will not be the last time we have an
    opportunity to talk about debanking in this Nation.
        For Senators who wish to submit questions for the hearing
    record, those questions are due 1 week from today, Wednesday,
    February 12th. Witnesses have 45 days from that day to follow
    up with answers.
        Thank you. And the Committee is adjourned.
        [Whereupon, at 12:32 p.m., the hearing was adjourned.]
        [Prepared statements, responses to written questions, and
    additional material submitted for the record follow:]

                    PREPARED STATEMENT OF CHAIRMAN TIM SCOTT
        Good morning and thank you all for being with us today.
        We're here to address an issue that strikes at the core of what it
    means to live in a free and fair society: access to financial services.
        Every federally legal business and law-abiding citizen deserves to
    be treated equally, regardless of political views or ideological
    leanings.
        This is an issue that is deeply personal to me.
        When my grandfather was growing up in the Jim Crow South, banks did
    business with people they felt looked the right way--based on the color
    of their skin.
        One's ability to get a loan to finance their home or State a
    business was based primarily on the color of their skin. And in the
    1940s, my mother experienced the same redlining that has been
    persistent, pervasive, and unfortunate for decades.
        Thankfully, our Nation continues to evolve in the right direction.
        And in the 1990s, when I was starting my small business, I went to
    a bank and looked for an opportunity to get a loan. I'll say, without
    any question, at that time as a kid growing up in poverty in a single
    parent household my best asset--Mr. Ricketts--was a 1990, ten-year old
    car with 253,000 miles. One would not consider that an asset, perhaps a
    liability, but it was my only means of transportation. And I will tell
    you, without a doubt, for me, it was an asset.
        The bank, however, helped me completely understand it was not.
    However, in those days someone could get a character loan, because of
    your time in a community, because of your relationships with local and
    community banks. Because of that, not only was my financial life
    changed, not only did my American Dream become a reality, but more
    importantly, my mother's American Dream became a reality.
        We saw the strengthening confidence in our banking system, because
    things had changed in the right direction.
        With that loan everything seemed to get better.
        Had I not gotten that line of credit, I may not be here chairing
    this Committee today.
        You see my story is so consistent with so many other Americans
    story that really reflects positively on the American Dream.
        In this country, access to credit is one of the cornerstones of
    building your American Dream.
        Owning a home and starting a business are challenging journeys
    filled with complexities, and achieving success is never a guarantee,
    nor should it be.
        That's why access to financial services is so important.
        The United States is home to a vast competitive network of banks
    and payment providers, creating one of the most robust and diverse
    financial services ecosystems on the planet.
        It is this incredible landscape that offers countless opportunities
    for homeowners and entrepreneurs to build a healthy foundation and make
    strides toward achieving their version of the American Dream.
        However, it is incredibly alarming and disheartening to hear
    stories about financial institutions cutting off services to digital
    asset firms, political figures, and conservative-aligned businesses and
    individuals.
        Under the Biden administration, we've seen the rise of what many
    are calling Operation Chokepoint 2.0, where Federal regulators
    exploited their power, pressuring banks to cut off services to
    individuals and businesses with conservative disposition, or folks
    aligned with industries they just didn't like--like the color of one's
    skin in my family's history.
        I wholeheartedly believe that debanking someone over their
    political ideology is un-American and goes against the core values that
    our Nation was founded on.
        Today, we'll have an opportunity to hear from Anchorage Digital's
    CEO, whose OCC-chartered bank was debanked, Old Glory Bank's CEO, who
    started a bank to serve those who had been debanked, and from a legal
    expert with extensive experience navigating these regulatory abuses,
    and from a policy expert at the Brookings Institution.
        This hearing will also examine how practices similar to the
    original Operation Chokepoint have persisted, despite assurances that
    they would end.
        We'll investigate the role both regulators and financial
    institutions have played in these harmful practices, which hurt not
    just businesses but also consumers and our entire economy.
        This issue should concern every American, regardless of political
    affiliation and that's why I am committed a bipartisan solution to stop
    this form of discrimination.
        This hearing is just the beginning.
        We are here to shine a bright light on these unacceptable practices
    and to hold those responsible accountable. The message is crystal
    clear: no regulator, and no bank, is above the principles of fairness
    and market access.
        Speaking of shining a light, I was so glad to see that just a
    couple of hours ago, the FDIC under President Trump's leadership
    released a fresh set of never-before-seen supervisory documents, which
    further prove that Chokepoint 2.0 was real.
        I will be going through the documents in greater detail, but rest
    assured for those in this room, and those watching at home, they paint
    a disgusting and disheartening picture of abuse.
        As Acting Chair Hill characterized them, ``these and other actions
    sent the message to banks that it would be extraordinarily difficult--
    if not impossible--to move forward with crypto related activities.''
        I commend the new FDIC leadership for its commitment to
    transparency, but it is a shame that it took an election--an election--
    for the agency to begin following the laws of our country.
        Thank you. I look forward to hearing from our witnesses and working
    with colleagues on both sides of the aisle to stop debanking and
    protect every American's right to participate fully in the economy.
                                     ______

             PREPARED STATEMENT OF RANKING MEMBER ELIZABETH WARREN
        Thank you, Mr. Chairman. Thank you for holding today's hearing on
    debanking. It is a real problem, and I hope it is something we can work
    on together.
        People need access to a bank account in order to thrive in today's
    economy. The same goes for businesses. Without a banking account, you
    really can't get along.
        ``Debanking'' happens when a bank shuts down a customer's bank
    account because they think that account poses a financial, legal, or
    reputational risk to the bank. Once the bank shuts someone out, they
    may share that information with companies that get paid to maintain a
    Do Not Bank list--with the result that the customer is blacklisted
    everywhere.
        For me, this is straightforward. It doesn't matter who you voted
    for, what you believe, or the origin of your last name--people
    shouldn't be arbitrarily denied access to their banks, locked out of
    their accounts, or stripped of their banking privileges.
        To help identify what is going on, my staff reviewed the Consumer
    Financial Protection Bureau complaint database, looking for cases where
    consumers reported that they were unable to open accounts or their
    accounts were wrongly closed--classic debanking. Mr. Chairman, we put
    together a supplemental memo on this data that I'd like to make part of
    the Committee record.
        My staff identified 11,955 complaints--and that's only the people
    who took time to file complaints and only in the past 3 years.
        They all reported common themes.
        No warning.
        No explanation.
        No chance to dispute or appeal.
        They described how one day, all of a sudden, they lost their place
    in the banking system.
        We know from the consumer complaint hotline that millions of
    Americans--of all political stripes--have had the same experience.
        Tens of millions of customers have been blacklisted by the banking
    industry because they overdrafted their account a few times.
        Formerly incarcerated Americans have been debanked because of their
    criminal history.
        Some people have been debanked for merely having the same name as
    someone who has a criminal history.
        Muslim Americans and Armenian Americans have faced debanking on
    account of their last names.
        Nonprofits and charities operating internationally have been
    debanked through no fault of their own.
        Lawful cannabis businesses have been unable to open accounts, and
    employees of those businesses have also been debanked.
        This shouldn't be happening. So we need to figure out why, and who
    is responsible. My staff did some more work here as well. They found
    that just four big banks--Bank of America, JPMorgan, Wells Fargo, and
    Citibank--accounted for half of all the complaints filed at the CFPB.
        Donald Trump was onto a real problem when he criticized Bank of
    America for its debanking practices.
        Banks may be taking shortcuts when it comes to assessing risks.
    Rather than investing time and resources to identify true criminal
    risks and shutting down those accounts, big banks are relying on black
    box algorithms and middle-men companies and shutting down accounts
    without doing careful due diligence.
        We can prevent these abuses. I know that the Consumer Financial
    Protection Bureau is a favorite whipping boy of Republicans on this
    Committee, but the CFPB is the main agency in our Government that is
    actively working to stop unfair debanking.
        Let me say that again: the CFPB is the one agency that is actively
    working to stop unfair debanking. Right now, the agency has five
    different rules either in place or in progress that would help prevent
    debanking by addressing some of the root causes, from overdraft fee
    practices to religious discrimination. And the CFPB is working to hold
    banks accountable when they close law-abiding citizens and businesses'
    accounts for no good reason.
        I sent a letter to President Trump today that walks through the
    CFPB's work. I'd like to make that letter part of the Committee record.
    I said the CFPB is the one agency fighting back against debanking, but
    that may be at risk.
        Earlier this week, Treasury Secretary and Acting CFPB Director
    Scott Bessent halted all CFPB rulemaking, enforcement investigations,
    and litigation against financial institutions that are breaking the
    law--including the banks that are wrongfully debanking their customers.
    The freeze Secretary Bessent has put on the CFPB means more Americans
    across the country will be unfairly debanked, and they will lose the
    one agency that is working to help them.
        There is additional work to be done by the Treasury Department, the
    Federal Reserve, the FDIC, and other regulators to issue clear Anti-
    Money Laundering rules and guidance for banks to follow, which would
    reduce the incentive to use debanking as a form of risk management.
        Mr. Chairman, I'll say again: I appreciate your holding this
    hearing. Debanking is a real problem, and I'm eager to work with you
    and President Trump to support the CFPB's efforts to make sure that
    banks treat all people fairly and that we put an end to this debanking.
                                     ______

                     PREPARED STATEMENT OF NATHAN MCCAULEY
                      Cofounder and CEO, Anchorage Digital
                                February 5, 2025
        Thank you, Chairman, Ranking Member, and distinguished Members of
    this Committee for having me as a witness today on the important issue
    of debanking and ensuring fair access to banking.
        I am Nathan McCauley, the CEO and cofounder of Anchorage Digital,
    an institutional crypto platform that is home to the Nation's first and
    only federally chartered crypto bank. I grew up in a small town in the
    Midwest called Economy, Indiana, with a population of about 150 people.
    Though I came from what many call ``flyover country'' and one of my
    first jobs was grilling burgers at McDonalds--I had big dreams. I
    wanted to be a computer engineer and entrepreneur. Early in my career,
    I worked on cryptography and as a security engineer. In 2017, after
    being asked for years by friends to help them manage the private keys
    to their crypto wallets, my cofounder and I decided to start a company
    to offer a safe way for institutions to custody their crypto at scale.
        That company is Anchorage Digital, which has offices in South
    Dakota, New York, Portugal, and Singapore and 400 employees around the
    globe, including 282 employees across 37 different U.S. States. As a
    remote first company, our employees are distributed throughout the
    United States providing great jobs in big cities but also small towns.
        Under the terms of our national bank charter, granted to us by the
    Office of the Comptroller of the Currency (the OCC) in January 2021,
    Anchorage Digital Bank safeguards digital assets, or more specifically
    the cryptographic keys to access digital assets. We have over a
    thousand institutional clients, including crypto-native companies,
    public and private funds, wealth and asset managers, and sovereign
    wealth funds. Anchorage Digital also provides these institutions access
    to other services such as staking, on-chain governance, settlement, and
    over-the-counter trading. We are proof that crypto companies can
    operate safely and soundly within the regulatory perimeter, and we are
    proud of the role we play as a bridge between the traditional financial
    system and the emerging crypto economy.
        I am grateful for the opportunity today to tell our story: how we
    sought out the highest level of regulatory scrutiny and certainty by
    becoming a national bank, how we built a best-in-class compliance
    program, and how we were nevertheless debanked, and denied access to
    banking services that our company depended on--the ramifications of
    which we are still dealing with to this day.
    What It Means To Be a Federally Regulated Crypto Bank
        For those who are not familiar, I want to briefly explain what it
    means to be a federally regulated crypto bank. We are subject to
    multiple on-site examinations by the OCC each year, including in-depth
    reviews of our documents and processes to ensure that we operate in a
    safe and sound manner and comply with applicable laws and regulations.
    Our examiners assess how we manage numerous categories of risk
    including credit risk, liquidity risk, price risk, operational risk,
    compliance risk, strategic risk, and reputational risk. Finally, we are
    held to the same asset management, BSA/AML and OFAC compliance, IT,
    security, and other standards as any other federally regulated bank. In
    fact, we have the ability to go beyond what traditional banks do in
    terms of transaction monitoring. We monitor the flow of funds not only
    within our bank, but funds that were once in the bank, and identify
    suspicious activity to an extent not possible in the traditional
    financial system. This has led to us assisting law enforcement in their
    efforts to catch and or sanction persons conducting illegal activities,
    well after these funds have left the bank.
        Meeting the requirements of a Federal bank charter is a significant
    undertaking. Yet we sought one because we believe that Anchorage
    Digital, our clients, and the industry benefit from the OCC's extensive
    supervisory experience and expertise, and that our business is a model
    for how existing laws and regulations can be adapted to the unique
    benefits and risks of new technologies.
    How We Were Debanked
        Despite being a federally regulated bank ourselves, subject to the
    same liquidity, capital, and risk management expectations of other
    federally chartered banks, we were debanked. I will describe here
    briefly what that experience looked like for our company--an experience
    that we believe was shared by many in our industry and perhaps in other
    industries, as well.
        For over 2 years, we had been doing business with our bank. We were
    a valuable client to them: we held a corporate bank account there, and
    they held our client fees from custody and other services, along with
    general corporate funds used for day-to-day business expenses such as
    payroll and administrative expenses. The relationship was so positive
    that we were in active discussions to expand our partnership. Not once
    in our 2\1/2\ year relationship had they raised any issues. We were a
    highly regulated, well-capitalized, well-run business--in many ways the
    ideal bank client.
        One day in June 2023, we received an urgent email from the bank
    informing us that they needed to speak with us that day. On the call,
    we were told that our account would be closed in 30 days because they
    were not comfortable with our crypto clients' transactions. We
    attempted to explain the source of all payments from our crypto clients
    were fully documented as a part of our robust KYC, AML, sanctions
    compliance, and other internal transaction monitoring and attribution
    processes, and that we would be willing to provide more information to
    their risk management team. They were uninterested. They refused to
    engage in further discussions, provide any additional explanation, or
    offer any chance to appeal the decision.
        Alongside this experience, we found ourselves shut out of the
    banking system at other touchpoints. After the closure of some of the
    few banks that were willing to serve crypto clients in March of 2023,
    we were forced to find a new banks to hold clients' cash funds in
    custody for trading purposes, as well as an account to hold segregated
    regulatory capital, both required to be held at an FDIC-insured bank
    under the terms of our bank charter. Again, we should have been a
    desirable, low-risk client for a bank. Yet over the course of a 7-month
    period we spoke to over 40 banks and were rejected by all of them. Many
    did not even cite a reason; others just vaguely told us it was not
    within their risk appetite to work with crypto clients.
        While Anchorage Digital was eventually able to find banks willing
    to partner with us, the impact of being nearly shut out of the banking
    system was devastating. It was extremely disruptive to our business and
    our clients, and contributed to the difficult decision we made in 2023
    to lay off 20 percent of our workforce, including 70 U.S. employees. To
    this day, our clients lack the ability to send wire transfers to third
    parties, a basic banking service we previously had access to.
    Furthermore, it abruptly ended opportunities to provide subcustody to
    other national banks we were actively exploring partnerships with.
        So why did this happen? I believe that regulators pressured banks
    to cut off services to the crypto industry. Why do I think this? Two
    things: a series of anti-crypto regulatory actions between 2021 to
    2023, and my own lived experience.
        First, in January 2021, the OCC put a hold on its Fair Access Rule,
    which may have prevented discrimination against disfavored industries
    such as crypto. Then in November 2021, the OCC issued Interpretive
    Letter 1179, requiring banks to seek permission from the OCC before
    engaging in legal crypto banking activities. Shortly thereafter, in
    April 2022, the FDIC required banks under its supervision to flag any
    current or potential business with crypto, and warned of the risks of
    conducting business with such entities. Also that month, the SEC issued
    SAB 121, which effectively prevented any public bank from providing
    custody of digital assets at scale. Finally, in what I believe was the
    nail in the coffin that led to the en masse debanking of the crypto
    industry, the Federal Reserve, FDIC, and OCC issued a joint statement
    in January 2023 warning banks against serving crypto clients or
    engaging in crypto activities of their own. The implied threat of
    enforcement action was clear, leaving many banks with no choice but to
    cut off crypto clients completely.
        Second, my lived experience. Outside of what happened to our
    company, I am an investor in four crypto companies that struggled to
    obtain and keep their bank accounts during this time, forcing some of
    them to shut down. Further, I have at least two employees that have
    been debanked because of what they believe is their association with
    the crypto industry. Finally, I have spoken to dozens of crypto leaders
    that have been debanked personally or had their crypto companies
    debanked.
        I want to remind this Committee and the public that none of the
    actions by the regulators described above were authorized by Congress
    or subjected to agency rulemaking, both of which would have allowed for
    the public to weigh in and offered transparency and accountability. The
    entire process was opaque, unfair, and amounted to a de facto ban on
    crypto by choking it off from the Federal banking system, something any
    industry needs to survive.
    Moving Forward
        Congress is right to investigate what happened, to protect and
    promote fair and open access to banking services for all law-abiding
    citizens and companies, as the President's Executive order on digital
    assets recently stated.
        Debanking is about more than just the inconvenience and disruption
    to our business and many others in the crypto industry. It is about the
    broader issue of ensuring fair access to the financial system and
    fostering the growth of an industry that could benefit Americans in
    terms of jobs, technological innovation, and financial inclusion. It is
    a threat to American values to create such arbitrary barriers against
    new technology and innovation which undermines our economic
    competitiveness as a country.
        I am encouraged by this Committee's efforts to investigate and put
    an end to the practice of debanking, including special attention to the
    debanking of crypto firms. In addition to holding hearings such as this
    one, I urge Congress to consider legislation similar to what has been
    passed at the State level to ensure fair access to financial services.
    Furthermore, the new Administration should consider rescinding the
    January 2023 joint banking regulators' statement and the OCC's
    interpretive letter 1179, which imposed an arbitrary pre-clearance
    requirement for banks wishing to engage in certain crypto activities.
        Thank you for the opportunity to appear today and I look forward to
    answering your questions.
                                     ______

                    PREPARED STATEMENT OF STEPHEN T. GANNON
                       Partner, Davis Wright Tremaine LLP
                                February 5, 2025

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                                     ______

                        PREPARED STATEMENT OF MIKE RING
                 President, CEO, and Cofounder, Old Glory Bank
                                February 5, 2025
        Chairman Scott, Ranking Member Warren, and Members of the Banking
    Committee, thank you for allowing me to share how Old Glory Bank,
    launched from Elmore City, OK, in April 2023, became a market solution
    to debanking.
        I am honored to speak on behalf of our more than 50,000 customers
    across all 50 States, our 88 passionate employees, and our pro-America
    cofounders, including Radio and TV Host Larry Elder (who is here with
    us today), the 27th Governor of Oklahoma and former two-term Member of
    Congress, Mary Fallin-Christensen (who is here with us today), former
    Copresident of Fox News and White House Deputy Chief of Staff of
    Communications for President Trump's 45th administration, Bill Shine
    (who is here with us today), Old Glory Bank cofounder and Chief Legal
    Officer (also my wife of more than 20 years), Anne Marie Ring (who is
    here with us today), plus the former Secretary of HUD, Dr. Ben Carson,
    and America's favorite patriot, Country Music Icon and John Rich (both
    of whom could not join us today). I'm also honored that Mr. Wade
    Christensen is here with us today, from the Great State of Oklahoma,
    whose family previously owned the bank we purchased to launch Old Glory
    Bank, who are now co-owners of Old Glory Bank.
        My perspective is that there have been two forms of debanking in
    America, regulatory debanking and participant debanking. Old Glory Bank
    is a market response to both.
    Regulatory Debanking
        Regulatory Debanking is an orchestrated effort by the Fourth Branch
    of Government--the administrative state, to deny banking services to
    LEGAL industries.
        The original Operation Choke Point began in 2013, when the Obama
    DOJ, working with the FDIC, bullied Banks to stop serving the firearms
    industry. This had the intended impact of choking-out deposit and
    lending services to the firearms industry, which Old Glory Bank has
    been working hard to solve since we launched in April of 2023.
        Operation Chokepoint 2.0 was started in early 2022 when the Biden
    administration caused the FDIC and the SEC to bully banks into not
    serving legal crypto companies, through FIL 16-22 and SAB 121.
        FIL 16-22, issued by the FDIC, effective April 2022, while
    reasonable on its face, was intentionally misused by the FDIC to choke-
    out banks from providing depository services to legal crypto companies.
        SAB 121, issued by the SEC, also effective April 2022, set forth
    irrational accounting rules for holding crypto as a custodian.
        Thankfully, FIL 16-22 has been exposed with lawsuits, and SAB 121
    was revoked by the new Administration 2 weeks ago.
        But, for almost 3 years, this one-two punch by the FDIC and the SEC
    had the intended effect of preventing banks from serving as a custodian
    of crypto and choking out banks from providing demand deposit services,
    which prevented banks from being the on-off ramp for legal crypto
    companies.
    Participant Debanking
        On the other hand, Participant Debanking is a voluntary effort by
    the Big Banks to debank Americans who disagreed with them on COVID, or
    who supported Donald Trump, or who held or donated to conservative
    causes.
        However, instead of sitting around complaining about what the Big
    Banks were doing, we created Old Glory Bank to be a market response.
        After a lengthy and difficult regulatory approval process, we
    purchased a one-branch bank in beautiful Elmore City, OK, on November
    30, 2022. Five months later, in April 2023, Old Glory Bank launched the
    best digital-first banking service for America. In less than 2 years,
    we grew from $10mm in deposits to more than $175mm in deposits. We grew
    from 300 customers in the Elmore City area, to more than 50,000
    customers across all 50 States. We now serve more than 2,000 small
    businesses across America. I humbly submit that we have better products
    than the mega banks, plus better service. Our customer service center
    is in beautiful Durant, OK, (not offshore), and we actually love our
    customers and respect their views.
        As part of our market solution, in less than 2 years, we launched a
    cancel-proof version of PayPal, called Old Glory Pay. We launched a
    cancel-proof version of GoFundMe, called Old Glory Alliance. We
    launched Old Glory Cash-In, so that our customers can easily deposit
    cash at 88,000 retail locations across America. We launched Old Glory
    Protect, which is a free $100,000 line-of-duty death benefit for
    America's Protectors, such as the military, firefighters, U.S. Border
    Patrol Agents, and Law Enforcement.
        Big Banks debanking Americans is clearly wrong, but I do not
    believe the answer is additional regulations telling banks who they
    must bank. If that occurs, this will certainly boomerang on us.
        For example, an openly pro-life bank should not be required to
    accept planned parenthood as a customer. Likewise, an openly pro-green
    bank should not be required to accept oil and gas companies as a
    customer. This should be a market decision, not a Government decision.
    Consider Tesla--Elon Musk never wanted EV mandates. Just a market
    opportunity.
        I believe that the simple solution to debanking, is more banks.
        Allow the free market to solve this problem.
        Unfortunately, the administrative state makes it too difficult to
    start and run a bank. In the prior 4 decades, America lost 73 percent
    of its banks. But starting a new bank is nearly impossible. For
    example, in a 2-year period of 2023 and 2024, about 8 new banks
    started. During the fiscal year period for 2023 and 2024, there was a
    reduction of 229 Banks (as reported by the FDIC).
        This lack of new banks is not because there are less entrepreneurs,
    less bankers, or less communities to serve. It's because the
    administrative state makes it too hard to start and grow a bank. To put
    this in perspective, in June 2022, we submitted an application to buy a
    one-branch bank in beautiful Elmore City, OK, with only $10mm in
    deposits and less than $3mm in loans. Yet to obtain regulatory approval
    to buy this little bank, it took 6 months, 3 rounds of additional
    information requests and more than 300 pages of submissions.
        I'll never forget an all-hands Zoom call we had with the FDIC, the
    Federal Reserve, and the CFPB, many of whom were D.C.-based (with
    preferred pronouns). They were visibly disgusted at being forced to
    talk to me about debanking, the Flag, and Pro-America issues. These
    career bureaucrats behaved like they were on Shark Tank, with the
    discretion to pick winners and losers. On that call, I actually had a
    career bureaucrat ask me: ``If Old Glory Bank is such a good idea, why
    has no one done this before?'' Of course, to any actual businessperson,
    that's the whole point. No one had done this before.
    Conclusion
        Senators, for all of the talk about not wanting Banks who are ``too
    big to fail,'' the exact opposite has happened. Big Banks keep getting
    bigger, small banks keep disappearing, and new banks are restricted
    from launching. With so few banks, the big banks have too much power
    over freedom and the economy.
        Please, instead of imposing any new requirements about debanking,
    consider a reimagined look at the existing regulatory scheme on banks.
    A free market can fix debanking. We merely need to make it possible for
    more great banks like Old Glory Bank.
                                     ______

                       PREPARED STATEMENT OF AARON KLEIN
            Senior Fellow in Economic Studies, Brookings Institution
                                February 5, 2025

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                   RESPONSES TO WRITTEN QUESTIONS OF
                 SENATOR CORTEZ MASTO FROM AARON KLEIN

    Q.1. Why should SARs reform be paired with the SAFER Banking
    Act?

    A.1. Response not received in time for publication.

    Q.2. How should SARs filing requirements be changed for State-
    legalized cannabis businesses?

    A.2. Response not received in time for publication.

                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
                SENATOR BLUNT ROCHESTER FROM AARON KLEIN

    Q.1. Transparency--Financial institutions play an important
    role in protecting our communities from financial crimes. Anti-
    money laundering reporting requirements are structured to not
    tip off bad actors. However, without updates to these decades-
    old regulations, law-abiding citizens may be caught up in
    reporting.
        What steps should we take to improve these reporting
    systems to target bad actors more accurately?

    A.1. Response not received in time for publication.

    Q.2. How can we better balance the need for transparency for
    consumers with the importance of confidentiality in serious
    situations?

    A.2. Response not received in time for publication.

    Q.3. Barriers to Bank Accounts for Justice-Involved
    Individuals--In the House, I cochaired the Bipartisan Second
    Chance Task Force, and I look forward to reintroducing the
    bipartisan Clean Slate Act, which seals eligible criminal
    records and allows those who have completed their sentence to
    participate fully in society, including accessing a bank
    account. We have worked on this at the Federal level and now
    States are passing their own Clean Slate laws. So much progress
    has been made across the country. Despite these strides, the
    fact remains that for returning citizens, it is still too hard
    to access a bank account.
        What barriers to banking do returning citizens face?

    A.3. Response not received in time for publication.

    Q.4. Does the use of AI and machine learning in risk analysis
    pose a debanking threat to returning citizens?

    A.4. Response not received in time for publication.

    Q.5. Where do returning citizens turn if they've been denied a
    bank account?

    A.5. Response not received in time for publication.

    Q.6. Do you think returning citizens would have better economic
    and social outcomes if they had full access to the financial
    system? How so?

    A.6. Response not received in time for publication.

    Q.7. Cannabis Banking--Starting this spring, the first
    recreational cannabis dispensaries will be licensed in
    Delaware. Up to 30 new retail businesses will have the
    opportunity to open. It is a public safety hazard if they are
    forced to operate in all-cash.
        What does Congress need to do here to address debanking of
    State-legal cannabis businesses?

    A.7. Response not received in time for publication.
                  Additional Material Submitted for the Record

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