Travis Hill, the incoming acting chairman of the FDIC, has criticized the agency’s current approach, vowing to address the debanking of businesses and individuals linked to cryptocurrencies, and to push for a more inclusive and transparent approach to financial regulation.
In a recent speech, Travis Hill, current vice chairman of the Federal Deposit Insurance Corporation (FDIC), criticized the actions the agency has been taking to curb the inclusion of companies and individuals linked to digital assets in the banking system, a phenomenon known as “debanking.”
Hill noted that the current approach has stifled innovation and contributed to the public perception that the FDIC is closed to the development of new technologies, such as cryptocurrencies and digital assets.
However, Hill, who will be the next acting chairman of the FDIC, He promised to radically change the agency's policies, and put an end to this “harmful” approach to innovation and financial inclusion.
With the departure of current FDIC Chairman Martin Gruenberg on January 19, Hill will assume the role of interim chairman.
The FDIC's 'debanking' problem for crypto companies
The term “debanking” refers to the practice of closing or freezing bank accounts of individuals or companies without a clear explanation. In recent years, this practice has particularly affected companies and individuals involved in cryptocurrencies, who have seen how Their accounts were closed without explanation or prior notice.Hill said this trend is unacceptable and goes against the core principles of financial inclusion that the FDIC has promoted for decades.
He also revealed that The agency even sent "pause" letters to more than 20 US banks, instructing them to stop any cryptocurrency-related activity. These letters, obtained through a Freedom of Information Act (FOIA) request filed by Coinbase, have sparked intense debate over the role of regulators in the digital asset industry.
“Access to a bank account is essential for individuals and businesses to participate in the modern economy,” Hill said during his speech. “Efforts to debank law-abiding customers are unacceptable, and regulators must work to stop them.”
During the Obama administration, Operation Choke Point, a Justice Department initiative, was criticized for pressuring banks to close accounts of businesses deemed “high risk,” including bookmakers, weapons companies, and, most recently, cryptocurrency firms. Hill has vowed to review these practices and ensure that banks are not pressured to exclude legitimate, law-abiding customers.
Towards a more transparent approach to cryptocurrencies
One of the key points of Hill’s speech was her criticism of the FDIC’s fragmented and unclear approach to cryptocurrencies. Instead of setting clear and transparent guidelines, the agency has opted for a case-by-case approach, which has created uncertainty and discouraged banks from working with digital asset companies.
“It has stifled innovation and contributed to the public perception that the FDIC is closed for business if institutions are interested in anything related to blockchain or distributed ledger technology.”, Hill said.
To address this, Hill has proposed a radical change in the action of the federal agency, which implies that, instead of issuing “pause” orders and requiring individual regulatory approvals, the FDIC should publish clear guidelines on what cryptocurrency-related activities are allowed and how to carry them out safely. In addition, he suggested that regulatory approvals should be more agile and timely, something that has not happened in recent years.
On the other hand, another of the proposals that Hill raised during his speech was FDiTech revitalization, an innovation lab created during the last Trump administration to foster the adoption of new technologies in the banking sector. However, under the current leadership of Joe Biden, this lab was abandoned. Now Hill hopes that during the second Trump administration, which is about to begin, this lab will be restored. be rebooted with a renewed focus on blockchain, artificial intelligence and other emerging technologies.
“The FDIC will need to hire more staff with practical experience working with new technologies, both at FDiTech and across the agency.”, Hill said.
The current FDIC vice chairman also proposed the creation of a public-private organization to set standards for due diligence of financial technology providers, to help reduce the regulatory burden on banks.
Lessons from the Silicon Valley Bank Collapse
During the speech, Hill also addressed lessons learned from the collapse of Silicon Valley Bank in 2023, an event that exposed the flaws in current banking supervision. According to Hill, regulators have focused too much on processes and not enough on fundamental financial risks.
«At the time of its bankruptcy, SVB was subject to a long list of supervisory criticisms, but most of them were not related to the actual financial risks»He said. “This is a systemic problem that needs to be addressed.”.
The vice president proposes adjusting the CAMELS rating system, used to assess the health of banks, and training examiners to focus on key financial risks rather than bureaucratic processes.
The Future of the FDIC Under the Vision and Leadership of Travis Hill
With a new administration in place, the FDIC appears poised for a change of direction. Travis Hill has made it clear that his priority will be to foster a banking system that is more inclusive, transparent and open to the innovation of emerging technologies. His proposals, which include the Review of de-banking policies, Clarification of cryptocurrency regulations and FDiTech revitalization, could mark the beginning of a new era for the agency.
To do so, however, Hill will have to balance the need to foster innovation with the responsibility of ensuring the safety and soundness of the banking system. She will also need to work closely with other regulatory agencies, such as the Federal Reserve and the Office of the Comptroller of the Currency, to ensure a consistent and coordinated approach.
Still, it’s clear that under her leadership, the FDIC is ready to leave behind the restrictive policies of the past and embrace a more inclusive and technologically advanced future. For the cryptocurrency industry, this could mean the end of the era of debanking and the beginning of a new stage of collaboration with the traditional banking system.
