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▶ 0:18:42friend well ladies and gentlemen the subcomittee on oversight investigations will come to order without objection the chair is authorized to declare recess of the committee at any time this hearing is entitled operation chokepoint 2.0 the Biden administration's efforts to put crypto in the crosshairs without objection all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record um as a point of personal privilege I want to say this is our first
▶ 0:19:12hearing of oversight and investigations uh for the financial service committee uh for the 119th Congress so I appreciate very much everyone being here and we look forward to a a very productive and and and civil uh and worthwhile time together I'm pleased that we have our full committee chairman chairman Hill with us and now on another point of personal privilege I I would like to uh yield to our ranking member uh representative Al
▶ 0:19:43Green thank you Mr chairman I'm honored to congratulate you on your new position your new station in life I do look forward to working with you and I welcome all of the members to the committee and uh would indicate that that I appreciate your kindness and generosity in agreeing to allow me to have next to the last opportunity to speak uh at committee hearings and again grateful very good
▶ 0:20:13thank you and now recognize myself for four minutes to give an opening statement today's hearing is entitled operation choke point 2.0 the B administration's effort to put crypto in the crosshairs I'd like to thank the witnesses very much for appearing before the committee today to share their experience their great experience and expertise on this issue FL administration's operation choke point 2.0 was carried out by the credential Regulators to Target and in fact debank the digital asset ecosystem FDIC used offline
▶ 0:20:43conversations and threats of formal supervisory actions to pressure Banks to deny service to digital asset firms their employees and even their customers this is a serious abuse of regulatory power unfortunately you would be wrong to assume this the first attempt to debank an entire industry beginning in 2013 Obama's Department of Justice enlisted Bank Regulators in the first iteration of operation chokepoint Obama uh President Obama's operation chokepoint targeted gun manufacturers
▶ 0:21:14payday loan companies our energy industry and other businesses and legal industries that were disfavored by the Obama Administration their plan was straightforward use the credential Regulators authority to threaten supervisory action against against Banks who chose to provide services to these industries after that the bank has an ultimatum continue to bank these customers under the looming threat of scrutiny or comply with the regulator's demands and remove that line of business from their books the
▶ 0:21:44Biden Administration broke out the same Playbook this time their target was the digital asset ecosystem Biden Regulators resorted to vague in interpretive regulatory letters threatening banks with negative examination scores and fines if they continue their partnership with digital asset companies this is serious overreach uh one that only uh not only undermines Innovation but directly harms consumers by restricting their access to new and beneficial Financial products acting
▶ 0:22:14FDIC chairman Travis Hill just yesterday exposed Biden's chugo activities that the bank crypto firms across the country he said requests from Banks were almost universally met with resistance both individually and collectively these and other actions sent the message to banks that would be extraordinarily difficult if not impossible to move forward as a result the vast majority of banks simply stopped trying to do business with crypto companies however
▶ 0:22:44the FDIC promised to correct course moving forward and I will continue to conduct oversight on their progress we will continue to conduct oversight on their progress and determine legislative Solutions very much solutions to emphas to make sure this does not happen again access to Capital and banking services are critical to the success of American businesses and that's why I am looking forward to hearing from our Witnesses today about how The Regulators have been carrying this out and to discuss solutions to make sure it stops the free market
▶ 0:23:15thrives when Innovation is allowed to flourish Regulators have a duty to protect our financial system but not at the expense of legitimate businesses like energy and crypto companies I yield back uh uh the chair now recognized the ranking member of the subcommittee the gentleman from Texas Mr Green for four minutes for his opening statement thank you Mr chairman yes the title of this hearing is Operation choke 2.0 the Biden administration's efforts to put crypto
▶ 0:23:45in the crosshairs however a better title for this hearing is how president Trump's self-dealing deregulation will put well-intentioned investors at risk the name operation 2.0 refers to a fake program never initiated by the Biden Administration to restrict the cryptocurrency industry's access to the banking system the Biden Administration
▶ 0:24:15did not prohibit Banks from dealing with cryptocurrency companies in January of 2023 federal financial Regulators issued a joint statement warning Banks about cryptocurrency Asset Risk including but not limited to the risk of Fraud and scams among crypto asset firms the risk of inaccurate or
▶ 0:24:45misleading representations and disclosures by crypto asset companies and many other risks in March 2023 silvergate Bank and Signature Bank two key crypto firms pardon me two key firms in the cryptocurrency banking industry failed in part due to their involvement with the digital asset sector for example between 2014 and
▶ 0:25:162021 the share of silver Gates crypto firm deposits increased from 1% of total deposits to a high of more than 98% the failure of these Banks demonstrated that the concerns Financial Regulators had regarding Bank exposure to cryptocurrency risk were well founded Regulators asking Banks to consider the risk associated with the cryptocurrency
▶ 0:25:46industry does not amount to Deb banking as my Republican friends are indicating Regulators simply urged Banks to exercise caution when dealing with this emergency this emerging and potentially risky industry unfortunately this hearing aids the Trump deregulatory Pro crypto agenda as just days before President Trump's inauguration
▶ 0:26:17he issued what I call a money Trump mean coin that was heavily promoted on social media investors who may see this coin as a way to get rich quick may be overpaying for something of dubious value and could be left holding the bag after a selloff notably the money Trump coins terms and conditions restrict buyers from bringing class
▶ 0:26:47action lawsuits even if they are swindled beyond the lack of investor protections and transparency issuance of the money Trump coin also creates an Avenue to circumvent National Security and anti-corruption laws allowing any interested party including adversaries and allies to anonymously transfer money to the president and his family I yield back
▶ 0:27:17the balance of my Time gentleman yields gentleman yields chair I recognize the chairman of the full committee Mr Hill for one minute I thank the chairman congratulations chairman muser for for your first hearing on this important topic I want to thank our Witnesses for being with us today and sharing your views uh access to banking services is critical to build a successful business and to grow our thriving economy consider what happens when a bank refuses to provide services to your company at the direction of a
▶ 0:27:49regulator that's exactly what was happening under the Biden Harris's policy of operation chokepoint 2.0 which nearly severed the digital asset ecosystem from financial institutions our Regulators highest priority should be promoting safety and soundness true at all of our financial institutions but not picking winners and losers we saw this not only uh in our bank supervision but also at the SEC where one of our Witnesses
▶ 0:28:20today coinbase an American company registrated as a public company with the SEC was treated poorly and FTX a criminal organization wasn't even investigated y back Gman yields we will now go to our uh Witnesses and I will have the honor of introducing each uh first we have our first witness is Mr Austin Campbell uh Mr Campbell is the acting CEO of wspn USA
▶ 0:28:50managing partner and founder of zero knowledge Consulting and an adjunct professor at New York University Stern School of Business previously Austin has hel multiple roles in the financial world including running trading deaths at JP Morgan and City for over a decade running the stable coin platform at paxos and being a portfolio manager and structurer at Stone Ridge and uh nydig welcome our next witness is Mr Paul greywall Paul greywall is the chief legal officer of coinbase global Inc where he is responsible
▶ 0:29:20for coinbase's legal compliance Global intelligence and government relations groups before joining coinbase uh Paul was vice president Deputy general counsel at Facebook and served as United States Magistrate Judge for the United States district court for the Northern District of California thank you very much for being here next is Mr Fred teal the chairman of the board of directors and chief executive officer of Mara he is over 35 years of extensive experience in the technology sector he's an acclaimed innovator and expert having led to LED
▶ 0:29:50organizations across diverse Fields including digital assets AI semiconductors and Enterprise software appreciate you being here our last witness is Miss Shaina olesik she is the director of banking policy at better markets she previously was the deputy director of the division of insurance and research at the FDIC and has more than 25 years of public sector and nonprofit experience in banking finance and economics uh again we uh we thank you all for taking your
▶ 0:30:20time to be here each of you will be recognized for five minutes to give an oral opening presentation of your testimony without objection your written statements will be made part of the record Mr Campbell you are now recognized for 5 minutes for remarks thank you chairman muser and thank you to the entire committee for the opportunity to testify today and all the staffers working behind them to make this happen Mr Campbell uh is your mic on uh my mic appears to be on is this better that's better thank
▶ 0:30:51all right excellent so thank you chairman muser appreciate the opportunity to testify today and all of the members and staff working on this hearing So today we're here to talk about operation chokepoint 2.0 which everybody will note means there was an operation choke point 1.0 prior to this that Congress also had to address before we get to the specifics of the crypto industry I would say this indicates we have a governance issue with banking regulation Brit large the fact that supervision is often confidential hidden
▶ 0:31:21and nobody knows exactly what happened itself is a problem that leads to abuse and I would SU suggest to the committee that without addressing this there will be hearings on operation chokepoint 3.0 and 4.0 and 5.0 onward to Infinity so what happened with 2.0 it was an attempt to debank the crypto industry in America and by dbank I want to be specific and say I mean the denial of banking services that are considered basic and fundamental to operating
▶ 0:31:51a business this is not you don't get approved for a mortgage this is not you don't get a loan on favor able terms this is I can't get a checking account to make payroll to pay rent to pay utilities to pay taxes and it is that specific area where there were severe problems for crypto companies from 2022 to present within the US Financial system so there was a document drop from the FDIC yesterday that highlights some of these problems but within it
▶ 0:32:22you will see specific mentions of crypto companies being denied accounts because regul ERS wouldn't approve new banking activity you will see specific clients being limited or eliminated by Banks because Regulators told them they were not allowed to bank them and you will see a concerted campaign to characterize all forms of activity touching the crypto space as illicit or extremely incompatible with safety and soundness guidelines now how does this work
▶ 0:32:53the FDIC has a rubric called camels and I'm sorry it doesn't refer to the animal that is an acronym that they use to actually think about Bank risk and it covers things like Capital assets liquidity objective and verifiable concerns the dangerous one is the letter in the middle the hump in camels the m and that is management and management serves as a subjective measure of a banking regulator's belief of the competence or behavior of the management of a bank and importantly
▶ 0:33:24whatever your camel's rating is is the ceiling on your total rating is bank so if I have a bank that does nothing but take money for checking accounts and buys T bills which would be the safest Bank in the entire ecosystem in the United States of America but a banking regulator decides for subjective reasons that management is poor and downgrades them that bank could be put out of business purely on the subjective Judgment of a regulator in private as all of that will remain confidential this is a vehicle
▶ 0:33:54for abuse and it's also an area where the safety and soundness concerns which on a standalone basis are legitimate become warped and they can be used as a tool to discriminate against Industries against individuals on any basis people want because it's not discoverable so in my written testimony I go into this in Greater detail but I believe there are important reforms this committee should consider with regard to how this Behavior happens in the banking space a simple one is that all banking guidance
▶ 0:34:24should be written do not allow verbal guidance do not allow hearsay and subjective statements write it down secondly that guidance should be made public on some trailing basis once you have a paper trail of what The Regulators are doing we will be having many less of these hearings we will know exactly what has happened when Banks refuse people Services they should have to tell them why and those statements should be written complete and transparent lastly they should abolish
▶ 0:34:54management and reputational risk as components of the rating of banks those are subjective Rife for abuse and can be used for really any ends that a banking regulator would like to wedge into an otherwise relatively objective framework finally I'm a professor I wouldn't let any of my students grade their own homework you should not be letting the banking Regulators grade their own work here either agency decisions should be subject to outside oversight don't let a banking regulator like the FDIC be judge jury
▶ 0:35:25and executioner in private thank chairman chairman muser ranking member green and distinguished members and staff of the committee thank you for the opportunity to testify today my name is Paul greywall and I serve as the chief legal officer at coinbase the largest publicly traded crypto company in the United States today I want to shed light on the systematic effort to debank the American crypto industry
▶ 0:35:55and then to deny it the legal protection afforded by Congress and the courts while crypto is the current Target any legal American industry could be next if Regulators continue to use banking services as a political weapon my focus today is on the actions of the FDIC in March 2022 the FDIC began sending letters to senior Bank officials urging them to stop all crypto related activity with no clear timeline for review or for sharing any analysis
▶ 0:36:25of explicit risks the letters continued well into 2023 in October 2023 the fdic's own Inspector General issued a report making clear the FDIC was actively limiting Financial Innovation with little regard to actual risk to the financial system that IG report recommended the FDIC establish a plan with time frames for assessing crypto related risk and clarify the supervisory feedback process regarding
▶ 0:36:55crypto activities the FDIC agreed to implement these recommendations by January 2024 but more than a year later the FDIC did not Implement anything and still has not implemented anything that adequately addresses these problems we agree Regulators should assess Financial risks but they should not use political bias to stifle a legal industry behind closed doors as a result coinbase and a partner
▶ 0:37:26filed multiple foyer request to the FDIC to uncover the extent of their actions after the FDIC stonewalled us at every turn we sued in federal district court in order to obtain the information the court ordered the FDIC to release redacted versions of their pause letters the fdic's initial production however was threadbear but just yesterday as Mr Campbell indicated and at the direction of FDIC acting chairman Hill the FD the
▶ 0:37:56FDIC finally released relased a more complete set of 175 documents totaling over 700 pages that reveal an even more disturbing pattern in practice to debank our sector than previously known over and over again the FDIC bludging the banks with an onslaught of examinations and questions until the banks relented under the pressure for example the documents show that Regulators forced Banks to deny stable coin issuers
▶ 0:38:26bank accounts for the result reserves that meant stable coin insurers had fewer places to turn for banking services causing increased concentration risk and fewer opportunities for Community Banks and others to grow deposits In This Very Room policy makers have raised concerns that crypto could pose a risk to the traditional Financial system but because of the fdic's actions here the opposite happened the traditional Financial system posed a risk to crypto and critically its customers during the same
▶ 0:38:56period in which the FD F was telling Banks to Halt activity the FDIC was also publicly denying they were discouraging Banks from offering services to lawful businesses including crypto for example in a January 2023 joint statement the FDIC along with other banking Regulators explicitly stated that banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific claster type as permitted by law or regulation
▶ 0:39:27regardless of one's views on crypto everyone should be alarmed that Regulators were saying one thing publicly while instructing Banks to do something very different behind closed doors coinbase's foil litigation has exposed this lack of transparency regulatory bias and abuse of power bringing these issues into public view has significant implications not just for crypto but for broader regulatory fairness I remain optimistic about crypto's future in America despite the abuse I've outlined today
▶ 0:39:57we can start by enabling Banks to provide crypto to that end coinbase sent a letter to the banking Regulators earlier this week urging them to take specific actions like withdrawing OCC interpretive letter 1179 and enabling Innovative Technology Solutions in addition to opening up banking services to the crypto industry I would urge Congress to pass legislation that creates regulatory certainty for crypto I applaud the work of chairman Hill and other members of this committee for their work on fit 21
▶ 0:40:27and stable coin legislation and we are eager to engage on similar legislation this year thank you and I look forward to answering your questions Mr teal you are now recognized for five minutes chairman muser ranking member green and distinguished members of the committee thank you for the opportunity to testify on the critical issue of debank of the digital AET ecosystem I'm honored today to be here to discuss the events that took place under operation choke point 2.0 and the effects it had on the digital
▶ 0:40:57asset industry at large my name is Fred teal and I serve as CEO of Mara a leading company in the digital asset industry and the largest publicly traded Bitcoin minor Mara is also the second largest corporate holder of Bitcoin I'm proud to say that Mara is dedicated to fostering US economic growth advancing domestic energy Innovation and bolstering US National Security through blockchain technology from revitalizing renewable energy assets and strengthening our power grids to mitigating methane Emissions on oil fields and driving
▶ 0:41:27efficiency gains in high performance Computing applications like AI Mara is fueling progress at the intersection of technology and Industry the employees that put on the mara hat and go to work every day are a team comprised of veterans blue collar workers and technology and finance experts who contribute significantly to our local and National economies Mara invested nearly $2 billion dollar into the US economy in 2024 including 215 million investment in Nebraska 200 29
▶ 0:41:57million investment in Ohio and over a billion dollar investment in the state of Texas as CEO of Mara I've had the privilege of being at the Forefront of the digital AET industry's Evolution over the last five years witnessing firsthand its growth and impact on the future of Finance the United States is no stranger to the disruption and change that accompanies Innovation our nation has not only witnessed but led the development of transformative Technologies like the internet personal computers and now artificial intelligence blockchain technology and digital assets
▶ 0:42:28represent yet another Frontier of officious change that is already revolutionizing our daily lives yet despite the positive impact and promise of this technology it is undeniable that the digital asset industry has been treated differently singled out and subjected to unprecedented actions that threaten to stifle America's leadership and Innovation such discriminatory practices contradict our nation's ethos of technological advancement and POS significant risks to our economic competitiveness and naal Security
▶ 0:42:58today I'm here to shed light on how these opaque behind the scenes Financial exclusion practices often occur without public scrutiny or legislative oversight and if left unchecked jeopardize the ability of legitimate businesses to operate within the United States driving Capital offshore clear Fair regulation must ensure that all companies that follow the law and play by the rules are treated fairly and have equal access to basic Financial Services it's crucial that we address these challenges to ensure America maintains its Competitive Edge in this rapidly evolving
▶ 0:43:29sector in 2023 and 2024 companies in the digital asset sector have experienced a disturbing pattern of financial exclusion by Major Banks payment processors and financial service providers these actions taken without clear justification include the closure of commercial banking services denial of lending and credit facilities and exclusion from payment platforms discriminatory Banking and Financial policies harmed the digital asset ecosystem and broader economic interests by restricting asset access to essential
▶ 0:43:59Services Banks and payment processors are determining which Industries can thrive in the US these restrictions also undermine energy and National Security goals as digital asset Mining and blockchain Technology are key to optimizing energy grids and bolstering Security Financial barriers slow investment in these critical Solutions additionally these practices violate free market principles allowing financial institutions to arbitrarily exclude legitimate Industries stifling and setting a dangerous precedent for financial
▶ 0:44:29censorship to address these systematic abuses I urge Congress to take several actions first ensure equal access to financial services by prohibiting blanket banss on digital asset companies requiring individual risk assessments instead second increase regulatory transparency by mandating that financial institutions disclose reasons for account closures or denials ensuring due process third promote a competitive Financial ecosystem through clear regulations that all allow digital asset businesses to operate without fear of
▶ 0:44:59arbitrary exclusion finally protect Innovation by recognizing blockchain's role in energy infrastructure and aligning Financial policies with National Security goals some financial institutions have become increasingly welcome of cryptocurrencies and blockchain Technology recognizing the growing and strategic importance of digital assets some have established dedicated teams and divisions devoted to integrating this technology expanding access to cryptocurrencies and investing in its future I want to thank those who have partnered with our industry and have
▶ 0:45:29vocally advocated for Clear Frameworks that will provide necessary certainty to allow America to continue to innovate and lead the world on digital Assets in conclusion the financial debank of digital asset ecosystems represents an existential threat to American leadership in technology economic competitiveness and National Security without immediate action leg legitimate businesses will continue to face discrimination forcing Innovation offshore and reducing US influence in a critical sector I appreciate the committee's attention to this
▶ 0:46:00matter and look forward to answering any questions thank you thank you Mr teal uh miss alesk you are now recognized for five minutes good afternoon chairman Hill chairman Muer ranking member Waters and ranking member green and members of the subcommittee thank you for the invitation to testify today my name is Shaina oesk and I'm the director of banking policy at better markets better markets is a nonprofit nonpartisan
▶ 0:46:30independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets support Financial reforms of Wall Street and make the financial system work for all Americans again I have more than 25 years of experience in the financial services and banking regulatory area I have led and participated in projects related to banking regulatory policy systemic risk the provision
▶ 0:47:00of banking services and products to all Americans including underserved consumers and communities the topic of today's hearing is of vital importance whether or not Regulators will conduct unbiased analysis regardless of the source of risk to the banking system what's really at stake is protecting our financial system and Main Street Americans from the risks costs and consequences of incredibly volatile
▶ 0:47:31and often flagrantly illegal conduct and criminal activity many crypto companies have put themselves in the crosshairs by choosing to engage in or enable these activities if the crypto industry had followed the law like almost every other Financial firm in the US then it would not be crosswise with The Regulators who are mandated to enforce the law and protect consumers investors and stability this is also an issue of fairness to the other Financial firms in
▶ 0:48:01the US who are following the law crypto should not be given an unfair advantage over its competitors with a different set of rules the explosive growth of crypto in recent years has massively endangered the financial system in ways we have never seen Banks and other Financial firms have become involved with crypto firms and several have experienced devastating failures these failures harm Med the banking system and Bank customers and came with an enormous price
▶ 0:48:31tag of $40 billion in direct costs that's billion with a b and threatened Financial stability furthermore Main Street Americans are being misled and defrauded into believing that crypto is insured by the FDIC which is a completely false claim financial experts regulators and law enforcement all recognize the very real risk that crypto presents to the banking industry and financial stability for instance the
▶ 0:49:02FBI received more than 69,000 reports of financial fraud involving crypto in the year 2023 alone with estimated losses to real people of billion even hedge fund Titan Elliot management has sounded an unprecedented alarm about the speculative frenzy in the crypto markets none of this is to dispute that access to the banking services
▶ 0:49:32is an important goal to support the functioning of our economy and benefit all Americans Regulators have two fundamental duties in this area first Regulators have a duty to ensure that Banks comply with applicable laws second Regulators must promote safe and sound banking practices and must take corrective action when Banks engage in unsafe and unsound practices the bottom line here
▶ 0:50:02is that regulators and Banks must act in the best interest of the public and Main Street Americans the facts and evidence show that standing with crypto often means standing with those who engage in highrisk if not illegal and criminal activities with a highly volatile product that has no legitimate social use and could endanger the entire Financial system and ultimately the economy these are very real risks having so recently suffered from the
▶ 0:50:32catastrophic 2008 financial crash enabled and fueled by unregulated novel and Innovative Financial products the American people deserve that protection thank you and I look forward to your questions thank you now I'd like to explain how ranking member green and I have agreed to establish the question order we'll follow the rules of the committee alternate between one Republican and one Democrat member for five minutes each with the exception that Mr Green will be the last Democrat
▶ 0:51:03member to speak or to ask questions immediately before the last Republican member uh we'll now turn to member questions um the chair uh myself I will recognize myself for five minutes uh Mr Campbell so you witnessed firsthand how operation choke point was orchestrated in the past can you give us some details walk us through the specific directives or tactics Regulators used to back then which pressured banks at the severing
▶ 0:51:33ties with legally operating businesses and how those tactics are sadly been um recognized in the um in more more recent past on related to crypto yes sir of course so I would say when you're in a risk officer position at a bank as I've been in in the past and you're communicating with Regulators you are getting fundamentally several layers of guidance from them one is whatever the written findings are
▶ 0:52:03that they eventually come to the conclusion of an examination or something of that sort but through the course of that and prior to the written findings is a lot of verbal guidance so when you were attempting to engage in certain types of crypto activities the kinds of statements you would get which you will see banking Regulators making to this day in public in fact Jerome Powell chairman of the Federal Reserve said similar things recently is while you are not legally prohibited from doing these things we find them to be extremely risky
▶ 0:52:33and there's no particularized analysis of why they are risky right if you were to say well you've told me giving a deposit account to a crypto company is risky because maybe these deposits will flee quickly and you say something like okay I hear you I will segment those deposits and back them only with t bills the safest most liquid asset known to man in the world ESS unlevered no long-dated lending and they say well we have reputational concerns about you banking crypto clients we're
▶ 0:53:03still not sure maybe we'll answer you on that maybe we don't but we still find it risky you understand that to mean no right I'm a parent I have two kids they understand when they ask me if they want to do something or not and I say well you can do what you want but I wouldn't if I were you that they know that really means no one thing they do is this the other thing they do which you know Paul you had referenced this earlier that the pause letters and sort that recently came out from the FDIC indicate is they
▶ 0:53:34will just ask you questions endlessly and tell you that you need to get permission from the regulator to engage in these activities and helpfully they'll never stop asking questions right this could be two years straight of questions with no end point no Finish Line no clear articulation as to what they're trying to learn and at some point it just becomes a repetitive cycle and it's clear the answer is no the final point is as I said with the regulatory guidance they will start punishing you in other ways they will look at your business and
▶ 0:54:04start tweaking your camels ratings they will start raising the operational risk of your bank they will start downgrading your management judgment because you have persisted in offering these sorts of concerns they will even go so far in many cases as to pressure Banks providing you Services if you are a small Bank to stop doing so so for instance there have been cases of smaller Banks having their core respondent banking relationships terminated so they can no longer send International wires or things of that sort where Regulators went and pressured
▶ 0:54:34other people serving them all those quite damaging those are extremely damaging and I would tell you these efforts make it uneconomic to serve the crypto industry so while there's no legal ban there is a functional ban for a for-profit Institute approaching this space when they thank you Mr Greywell thank you the uh significance of these pause letters can you kind of summarize that for us what the pause letters show chairman muser is that over and over
▶ 0:55:04again Banks were subject not to regulation by examination but regulation by exhaustion you had question after question raised if if even a hint of of of Interest was shared that the bank wanted to enter into a basic service for its customers involving crypto or to facilitate basic crypto transactions what makes the pause letters particularly troubling is that all of this activity all of this exhaustion and
▶ 0:55:34and re and reexamination took place against a backdrop of the FDIC telling the public something very different and this comes in the form of the response to the Inspector General report that I referenced in my opening statement it was in that response that the FDIC suggested that Banks had every right to participate in crypto activity we know that was false and we know that they had no intention of ever permitting that activity to take place it's that practice of saying one thing in public and doing
▶ 0:56:05something very different and in private um that I think is particularly concerning is something that this committee ought to pay attention to thank you uh Mr teal in spite of the actions taken by the FDIC which were egregious and somewhat astonishing the damage caused are there Solutions and are those Solutions quite uh my time has expired so I'd like to hear that answer throughout the course of this testimony thank you I now uh yield to the gentlewoman
▶ 0:56:35from California Miss Waters ranking member of the full committee for five minutes for questions thank you very much Mr chairman uh while I would like to really engage on this question of Deb banking um having worked on stable coins and understand what is going on uh both with the big Bank Banks of America and with crypto um let me just say the big banks are interested are not interested
▶ 0:57:05in uh opening up Bank um to the small people to poor people um and they have debanked uh large segments of the communities of America already uh with crypto they're divided crypto talks about some of them uh they want regul other do not want regulations so I'm not going to spend my time talking about them this fight is going to go on for quite sometime we must
▶ 0:57:35however acknowledge the Takeover of the federal payment system by an unelected billionaire donor that took place last week despite resistance from senior officials co-president musk sees access to treasury Payment Systems including the sensitive personal data of virtually every American I've heard from hundreds of people who are worried about Elon Musk having
▶ 0:58:06access to their sensitive data including the impact on Social Security payments Medicare benefits what are the implications of this illegal takeover for the American people and while we have been confronted uh with chaos uh in the past few days and we're trying to figure out what's going to happen uh to those employees those federal government employees have been
▶ 0:58:36uh told uh that they're going to be furloughed they don't know what's going to happen to them I was absolutely shocked when the president of the United States said to all of the Departments that supposedly have people that are working in diversity equity and inclusion out by 5:00 it sounded to me uh like some of those times that we witnessed in the past uh with communities that told people
▶ 0:59:06to be out uh by Sundown etc etc and so we can talk about what is going on with debank and all that we want but America is in trouble deep trouble and it's not simply about what is happening here with the leadership of of this government in America they're all over the country I just discovered that Elon Musk is threatening the president of South Africa we worked very hard
▶ 0:59:37uh dealing with South Africa and getting rid of the kind of racism that was involved historically and now they're being threatened because Leon uh uh Elon Musk is going to open up a battery Factory in South Africa he wants them to get rid of the 30% participation that was fought for so that black South Africans could participate and so Trump is saying to the South African government if you don't get rid of your
▶ 1:00:07diversity equity and inclusion we're going to cut off all of the support through the US Aid us Aid has been shut down and it was shut down by the co-president Elon Musk and guess why he's under investigation by the US ID and so while we talk about Deb banking that's an issue and I'm going to tell you the banks and crypto are going to fight it out and I guess the biggest
▶ 1:00:38billionaires will win because that what it seems to be all about in this country these days and that is about billionaires and their power so go on and talk about it but I'm going to fight for the opportunity for the average person in this country for the little people to have some kind of banking services we've been screaming about payday loans we've been screaming about a lack of access for people in poor communities that's not a big issue anymore it's about whether the big
▶ 1:01:08Banks and crypto are going to find a way to get along so you all carry on with this today but I want you to know I'm going to continue to pay attention to what the co-president is doing what this President is doing and the kind of rally that was seen over at the treasury department just a day ago where everybody came together thousands of people to say hands off our private information hands off Social Security hands off what is happening with the tax
▶ 1:01:38revenue in this country with that I'm know you're glad I yeld back the balance of my time General lady yields without objection I ask unanimous consent to enter into the record the statement by the Department of Treasury about what is actually happening within the payment system and the level of security that has been assured by the Secretary of the Treasury without
▶ 1:02:09objection uh we now recognize the gentlewoman from Missouri Mrs Wagner uh who is also the chair of the subcommittee on Capital markets and now recognized for five minutes I thank you Mr chairman and congratulations on your new gavel and I am going to try and turn us back to the topic of the day and I thank our Witnesses for sharing the difficulties their firms have had accessing routine banking services
▶ 1:02:39simply because of their involvement in the digital asset ecosystem it is clear that under the previous administration the Biden Administration digital asset firms were the victims of a pressure campaign initiated by by Regulators designed to cut them off from our economy Regulators should not be picking winners and losers based on
▶ 1:03:10what industries enjoy the political favor of the sitting president individuals operating fully legal businesses deserve the right to seek access to Banking and Banks must be free to make decisions about the customers they serve without Regulators pressuring them to tow the Hostile administration's line Mr teal has your bank
▶ 1:03:40ever stated whether their credential Regulators told them that they should refrain from providing services to digital asset firms representative Wagner um we banked with signature and when their uh the FDIC shut them down and Flagstar took over the accounts none of the crypto accounts were allowed to be part of those assets Acquired and we were forced to immediately seek accounts with other Banks
▶ 1:04:10we were able to open an account with another bank deposited $70 million after going through all the approval processes and six days later we're told we have to shut down the accounts because our bank no longer will Bank crypto companies so the answer is yes yes and what did they say we were basically given uh a policy decision by the bank that they would no longer service crypto companies period and uh we were asked to withdraw our money and I think it was 24 hours or 72
▶ 1:04:41hours no no explanation just by Fiat yes wow Mr Campbell do you believe the treatment by the credential Regulators related to digital assets differs from the treatment of other lines of business transactions and portfolios I definitely do um there was actually a study recently by the Aima and John de austino that I reference in my written testimony where they went and systematically
▶ 1:05:12surveyed Asset Management firms those who are traditional asset managers so call it the fidelities of the world and hedge funds and things of that sort then those that served crypto among the traditional asset managers many of whom do engage in highly risk strategies and I say this as somebody who's worked at a traditional asset manager myself almost none of them had problems accessing banking services but among the crypto segment even those doing the most vanilla most boring long only sort of strategies roughly 2third
▶ 1:05:42had problems acquiring banking services there was a large disparity and I'd like you to um uh get me that study and we'll submit it for the record thank you U Mr Campbell do you believe that Regulators are using de banking as is a tool to advance their anti-d digital asset agenda I do and you see this in many of the FDIC pause letters where they just say crypto is bad and you ask them well why do you think crypto is bad and they say because it's risky and you ask them well why do you think it's risky and
▶ 1:06:12they say because it's bad right it is circular reasoning and they never really give any fundamental justification for why it might be risky for say Mr Teal's company to make payroll right or pay their rent and that is sort of what gives lie to me of the behavior is the inability to provide even basically riskless banking services okay we've also seen overzealous regulation by enforcement and that's what I call it regulation by enforcement by the SEC uh Mr uh GRL
▶ 1:06:43how has a regulation by enforcement approach hurt us leadership in technology and financial Innovation Congressman respectfully uh I think another way to ask that question maybe how hasn't it hurt us to be sued by the SEC after years of asking indeed begging for simple rules from the Securities and Exchange Commission I know that could be followed and allow companies like ours to uh accept their invitation to come in and register
▶ 1:07:13would you would you clarify a little bit more can you describe coinbase's efforts to gain Clarity from these regulators and financial institution yes ma'am uh we have formally requested Rules by petition um that petition was denied by the SEC that denial was found to be arbitrary capricious and the reasoning vacuous by US court of appeals we have attempted to meet with the SEC on dozens and dozens of occasions with our own ideas for how regulation might work and what standards might apply to the industry as a whole over and over again
▶ 1:07:44we were thwarted we were told thank you and go away I I I thank you I'm sorry we're going to get this straightened out my time's expired Mr chairman I Lady Ys the chair now recognizes the general woman from Michigan Miss T for five minutes thank you Mr chair um Miss uh oesk uh what would you say to a family member that uh a friend that came up to you super excited to invest in crypto or digital assets I think we all had that one cousin that called um
▶ 1:08:14I mean what would you say to them before they invested thank you for the question congresswoman uh I think that uh Americans are skeptical of crypto and rightly so uh Americans have seen the illegal activity and arrests and just dangerous activity uh looking at a CNBC poll only 8% of Americans have a positive view of crypto and looking
▶ 1:08:44at the Federal Reserve data only 7% of Americans own crypto and only 1% use it to buy things so I would uh encourage them to have some caution and and uh to to encourage them to go to a Traditional Bank where well I raise the question because um there are Detroit residents who have lost thousands of dollars in cryptocurrency in my district and I actually have one of um my Leonia residents right outside of the city recently contacted our office where she had lost $400,000 through
▶ 1:09:14a cryptocurrency scam um and it was just heartbreaking and I just feel like we can't we cannot ignore that today's hearing of course is supposed to be about debank um faced by crypto uh industry but if we really were concerned about financial inclusion we know that many of the most vulnerable Among Us black brown um lowincome uh lack access to basic financial services and I know across the country we have Charities individuals and their businesses have experienced trouble uh opening a bank maintaining
▶ 1:09:44their account sending or receiving payments because of religious or ethnic National affiliations and I say this because as one of the only few Muslim Americans serving in Congress I was surprised to see that one of the poll found one one of these polls found found that more than one out of four Muslim Americans reported challenges while banking um and someone said in my district once it's called banking while Muslim right um and M how can lawmakers be able to combat such discriminatory de
▶ 1:10:14practices so I think uh I would answer with two things uh first to uh strengthen oversight and increase accountability to ensure that banks are following the appropriate laws and regulations that uh anti-discrimination laws that protect all Americans and secondly uh under the the former cfpb uh chair uh director we I I think some good work was being done to explore
▶ 1:10:44alternative methodologies for people without credit to uh to build credit um yeah I think this is more because they're Muslim so now I'd like to discussed facts motivating today's hearing and coin bases um and its in Consultants complaint against the FDIC the claim they quote starting probably familiar with this starting in 2022 fin federal financial Regulators have taken a concerted step steps designed uh to the digital asset
▶ 1:11:15industry but what's interesting about this timeline and maybe ranking member you'd find this interesting what H what actually happened around 2022 folks are forgetting I mean they were going to play dumb but we're not we know what happened investors lost two trillion during what we call what crypto winter and a whole host of crypto and digital asset companies went Belly Up including FTX and Celsius and early 2023 we saw Silicon Valley Bank Signature Bank and silvergate
▶ 1:11:45failed with crypto crypto playing a huge role in it so how would you characterize the crypto industry's access to banking services before crypto company and Regional banking failures around 2022 so I think that the uh there was uh caution and the The Regulators recognizing the risk that the that these companies they messed up right it got me it messed up they failed they I mean this2 trillion dollar
▶ 1:12:15true yeah but they act like poof we were just like picking on them true so I we were picking on them they messed up so The Regulators uh you know the banking Regulators recognizing the risk that that these companies presented and then we saw what happened in in 2023 well really quick I mean I know according to the FD DC's Inspector General reported in early 20223 that 136 FDIC insured banks have ongoing or planned digital asset activities
▶ 1:12:46so it sounds like crypto industry was doing okay in terms of access then the industry tanked Banks got spooked Regulators took a close look so would you agree with this rough timeline and description because I think it's important for the American people to understand this as we sit here what happened before all of a sudden you guys all got the knock on the door something was happening and so I think it's really important so again um its Regulators got tougher after multiple bankruptcies and related
▶ 1:13:16pink failures that's a fact and it's part of the again I think the fact that no nobody's going to bring up you know you fail you're hurting a American people we're going to we're going to have oversight and we're going to make sure it doesn't happen again thank you and Lady HS Mr lder mil of Georgia is now recognized for five minutes for his questions well thank you Mr chairman uh thank the panel for being here it's a very important topic and it's something that has to be addressed um and with the original choke
▶ 1:13:46point uh Fe Federal Regulators carried out a coordinated campaign of harassment against law-abiding businesses based on thinly defined reput ational and Regulatory risk that resulted in the systemic debank of thousands of American businesses legal businesses and I would argue constitutionally protected businesses um like gun dealers pawn shops and installment lenders while the first Trump Administration ended this abuse of regulatory power the Biden Administration
▶ 1:14:16Regulators wasted no time in bringing it back with a new Target innovators and entrepreneurs uh my first question question Mr Campbell to carry out their politically motivated campaign against American innovation Biden Regulators use something called supervisory non objection letters could you briefly explain what these letters are and and what they're and what they meant for banks yes of course um it basically requires a
▶ 1:14:46bank to go to a regulator and get non-objection that is to say they don't tell you no to be allowed to engage in any sort of banking activity so in your opinion do these letters change the law as enacted by Congress I think when they are abused there is that potential yes in fact to the previous representative's point we're somewhat twisted around here and that The Regulators took the stance of because some actors in a space are bad we will therefore debank all of the actors
▶ 1:15:16in a space which you will notice is the exact sort of line of thinking that's been promulgated to justify the actions of the FDIC with regard to ch point but also you know was the rationale behind redlining and the denial of banking services to minorities at the past so I would suggest it's a governance issue yes sir all right thank you for that um the Trump Administration Regulators particularly the OCC also use supervisory interpretive letters during his first term what are the main differences between those interpretive letters and
▶ 1:15:47the supervisory non-objection letters issued under the V Administration well interpretive letters are attempting to parse through the law and give people a path to either engage in actions or a rationale not to engage in those actions hopefully well founded um and when they're made public I think they're very valuable because then everybody is playing by the same rule set the non-objection letters were particularized individual and private so exactly as Mr greywall said earlier there's no way to know
▶ 1:16:17what each individual bank is being told and it allows a regulator to say one thing publicly and do something else privately or just as bad f faor some banks over others so I guess the uh the title of the letters is definitive interpretive versus non objectionable okay well thank you for that and Mr gwall um did the Biden Administration specifically issue the supervisory non-objection letters to Target digital assets that were previously Allowed by the Trump Administration
▶ 1:16:47yes if banks must ask Regulators for explicit permission to bank crypto firms how does this affect affect their willing to bank those firms it discourages those Banks from even trying in the first place congressman and the reason is that having to submit those uh requests um under a well-defined framework with a deadline is one thing but to Simply submit and await an answer whenever and according to whatever standard the regulator deems
▶ 1:17:17fit that's something else entirely uh and that's something that ultimately discourages Banks from even participating in the first place so are you aware of any banks that went through the non-objection process and if so how did those Banks fa I'm aware of many examples of banks who have went through that process as a result of the documents that we secured through our Foya suit against the FDIC and what we saw in the documents that were produced just yesterday is that in case after case when the bank stepped forward and raised their hands and asked for permission to offer basic Services
▶ 1:17:48they were either ignored or they were given detailed examination and reexamination and re examination until they simply gave up so there was a time and I believe that uh the administrative state was established to work with industry uh to provide guidance uh create uh some consumer protection I remember when FDIC was viewed as a partner with banks would help the banks to uh uh to operate in a in a functional
▶ 1:18:18this sounds to me like this is an adversarial relationship instead of a partnership would you agree with that I would if there was an offer made it was an offer that the banks were not allowed to refuse well thank you how back gent yields the chair now recognizes the gentle lady from Georgia Miss Williams for five minutes for her questions thank you chairman mus and ranking member green now colleagues I'm going to need a little help from y'all in this first portion raise your hand if you've been overloaded this week with urgent calls from constituents
▶ 1:18:48worried about how President Biden treated crypto okay I didn't get any calls about this this week no so raise your hand if you've gotten urgent calls from your constituents about a non-elected billionaire and his overreach in the agencies that this committee oversees and harming those most marginalized my phones have been ringing off the hook exactly what I thought my colleagues are seeing the same thing
▶ 1:19:19y'all this is our first subcommittee hearing and it's going to be about fake oversight over the crypto policy of former President Biden he isn't even in power anymore are we really going to ignore all of our constituents who've reached out with their frustrations confusion and concerns about Elon Musk dismantling our federal government getting answers for our constituents is what this subcommittee should be doing now look I fully understand the importance of the crypto
▶ 1:19:49industry the digital asset Market is rapidly growing and throughout my dist District especially in my home city of Atlanta so I get it y'all I want my people to thrive the financial services committee should have serious bipartisan conversations about crypto policy but saying that President Biden's policies discriminated against crypto firms isn't a serious take it's a distraction from the mess that my colleagues my Republican colleagues are creating here DC
▶ 1:20:19so I have a better idea if my Republican colleagues want to talk about discrimin in the banking system let's have a real conversation about that and I'll start miss oesk the city of Atlanta has one of the largest racial wealth gaps in the country did that just emerge over the last four years because of President Biden's so-called discrimination against cryptocurrency thank you for the question congresswoman and no the the wealth Gap has actually been growing for years and decades now and has actually gotten worse
▶ 1:20:50not better exactly I didn't think so so miss elestic let me try another theory did the racial wealth Gap be merge in part because of the long Legacy of discrimination against black and brown Americans in the banking system yes I believe that that has contributed uh black and brown Americans do not feel comfortable going to uh traditional Banks often they feel discriminated against uh so yes I believe that that is a major now we're getting somewhere many black and brown Americans have historically been turned
▶ 1:21:20away from the traditional banking system simply because of the color of their skin many black entrepreneurs still have cashon businesses so miss alesik what can Regulators do to address the real needs of unbanked individuals like so many throughout my district in Atlanta I think this is a key question and I have a couple suggestions first of all um there are what's called minority depository institutions or mdis these are banks that are specifically focused on serving
▶ 1:21:50minority communities and there have been many studies that show that black and brown people who go into a bank where they see people that they feel comfortable with they often uh loan approvals are are better and they they have a better experience at a bank so encouraging more of the MD uh to open um unfortunately they're on a downward Trend now so that's something that uh that we need to do and also expand diversity in
▶ 1:22:20public and private leadership both at Banks and at the agencies to ensure sure that the policies are are serving everyone so while my Republican colleagues want to discuss getting bank accounts for cryptocurrency I want Fair policies I want it across the board but I wonder more about getting bank accounts for the people in my district Who Remain unbanked I was once unbanked myself unfortunately recent data shows that 11% of black American households are still unbanked compared to 2% of white households
▶ 1:22:51so miss oesk Will attacking and getting rid of diversity equity and inclusion programs throughout the government help close the racial wealth Gap or widen this divide oh it it will absolutely widen the Divide it's not going to help at all so thank you so much for this conversation today I hope that we can continue to make sure that while we are not only looking out to make sure that cryptocurrency firms and everyone who is seeking to thrive in this industry have access to bank accounts that we're
▶ 1:23:21also looking out for those people that we were sent here to serve like the people in my district in Atlanta it's clear that we have a lot of work to do in this Congress but if we're going to do it we have to talk about the real problems facing real people thank you Mr chairman and I you back G lady yelds the chair now recognizes Mr Garbarino from New York for five minutes thank you Mr chairman uh thank you to the witnesses also for uh for being here today uh one story that we've consistently heard from opponents of digital assets is how it provides
▶ 1:23:51for significant source of financing for terrorist groups and other elicit activities however the evidence tells us a different story according to a recent report elicit activity is down with analyst estimating that crypto transaction volume associated with ilicit activity is only at.
▶ 1:24:0834% um Mr greywall how do companies like coinbase approach know your customer and anti-money loading requirements uh from with financial institutions thank you for the question Congressman uh coinbase is licensed in 45 States as a money transmitter and also the New York bit license also applies to our firm we are a registered Money Services business with finsen under the Department of Treasury we also have Broker dealer licenses all over the um federal government as well at the SEC and we
▶ 1:24:38are also licensed at the cftc with respect to your question we take our obligations to follow the bank secrecy act and all kyc and AML rules extremely seriously we have hundreds of employees and thousands of contractors who work on these issues each and every day to the extent you or any other member have questions about the the strength of our commitment uh to law enforcement and enforcement of the BSA I encourage you to speak with the men and women of law enforcement at the FBI the DEA and across this country and state and local departments I think they
▶ 1:25:08will tell you that their best days are when they are investigating crime that involves cryptocurrency as opposed to cash or other forms of payment that are far more prevalent in this country they prefer to work with coinbase thank you very much Mr teal uh prior to being debanked had you provided all necessary information to your bank in order for them to be compliant with kyc and AML standards yes sir had your previous banking partner raised any kyc or AML concerns with you during
▶ 1:25:38that relationship none sir so since being debanked do the institutions you attempt to receive service from site kyc or AML risks associated with your company no sir um Congressman they essentially just say they have a policy against crypto and in some cases the kyc process can take years and then they simply say unfortunately our committee won't allow a crypto customer and that's because of regulators correct sir
▶ 1:26:08so there's no you have had no concerns with kyc AML no banks don't bring that up to you they they just say they they can't do business with crypto sir we're a fully SEC regulated company audited financials uh they don't raise any issues like that so The Regulators are the ones we leaving you where you are right now we believe so thank you um and Mr Campbell you're are you you're familiar with the kyc and AML requirements correct yes sir can you describe some of the issues that are considered when institutions are working through these
▶ 1:26:39uh requirements yes you're looking at the legal identity of the customers the validity of their business activity the source of funds the expected activities over time what you might think of as deviations from that compliance with law and so on so if I was sitting at a bank and evaluating say coinbase I would be looking at things like are they licensed what is their Staffing what is their policies where do they get their money you're doing a comprehensive analysis of the behavior of a client it's a very deep dive and
▶ 1:27:09you feel comfortable after after doing it hopefully you want to at least well look and when you don't usually you should have found something particular like oh this owner is on a NOA sanctions list or oh they appear to be laundering money for XYZ reasons it's not really supposed to be about for lack of a better word Vibes I appreciate that and uh you know I appreciate all the witnesses uh with with your answers here it's just obvious that uh you know The Regulators are it seems that they're the real reason that uh this is
▶ 1:27:39you're all here today testifying and not uh not the banks uh and uh we have to get that under control that's our job here at Congress so I I appreciate you all being here and I appreciate the chairman for having this hearing and I yield back Gman yields uh Mr lard of California is now recognized for five minutes thank you Mr chair and thank you to all the witnesses for your statements I uh I appreciate uh my colleague Congressman Williams frustration with the focus of the subcommittee on U historic analysis of Regulation
▶ 1:28:09uh which I think I might agree with many of the assertions made that in some cases may have been overreached in other cases I don't think so but regardless this Administration is no longer an office I'd much rather Focus uh on a forward-looking uh uh approach of what we can do to make things better uh and I think debank and access to banking services is a serious concern uh and I hope that Mr chairman that all of us uh will agree that we need a strong Consumer Financial Protection
▶ 1:28:40Bureau uh to ensure uh that access to banking services is widely available uh in addition to addressing concerns about banking regulators and its impact on De banking uh we've got about 5.6 million low-income households uh that critically need access to banking services aren't getting them so I hope we can be more forward-looking going forward um I on that note I'd like to consider the larger questions that Mr Campbell raised about banking regulation generally Uh I that
▶ 1:29:10those were interesting and I want to pose the question Miss forgive me Alik thank you uh thank you for your patience of my pronunciation um I know you've raised obvious concerns about uh regulation of banks in the context of a digital asset that may have for example High volatility uh Mr Campbell recommends though as we're thinking about banking regulation generally that uh Regulators uh
▶ 1:29:40going forward uh approach regulation in a way that is and I'm going to summarize here not not perfectly but first that the regulation be written not oral uh that be public not secret uh that be explanatory of rationale used to reach the decision and there be some for lack of better terms subject to appeal by a third entity and I'm just curious about how your view of banking regulation does that make sense as we think about how we can do better going forward thank you for
▶ 1:30:10the question Congressman um I actually agree with a lot of those suggestions um I think we need to start with the perspective that Regulators must take a risk-based approach to this issue um and regardless of the industry crypto or otherwise um Regulators must look at what risk that's presenting to an individual bank or to the banking system in general looking through the lens of financial stability with regard to the
▶ 1:30:40solutions and a way forward and I describe this more in my written testimony um I have two main suggestions first Clarity on rules and expectations for banks I think that will set a Level Playing Field for for everyone involved um and secondly more disclosure requirements for banks I think this will help um it it will help on the clarity but it will also ensure that uh if someone whether they're crypto crypto customer or
▶ 1:31:10a minority customer who's trying to get access to to banking they will understand why they're being told no thank you um I I I want to go to Mr gwall for a moment um I understand the FDC has announced on Wednesday uh that with withdrawal its current guidance to banks on engaging crypto related activities uh I know you've urged withdrawal of the OCC interpretive letter I think it was 1179 uh which you found to be inconsistent with prior OC letters
▶ 1:31:41uh to what extent does the fdic's action address your concerns do we still need to withdrawal uh somehow or another uh enact legislation that would force the withdrawal of that OC thank you Congressman I think the fdic's announcement was a positive step but I don't think it goes far enough the fact of the matter is that in response to the inspector General's report the FDIC committed to conducting risk assessments of the crypto activities that the banks wish to engage in and to date we have no indication
▶ 1:32:12whatsoever that they did any assessment of the risk that they claim were so significant that they couldn't even allow the banks to participate in those activities at all the other thing I would point out is that the FDI in response to our requests abused the confidential supervisory information designation to redact page after page of materials in ways that were rejected by a federal court that needs to be addressed finally u in response to uh an order from a federal district court to produce
▶ 1:32:42these pause letters that we were referencing the FDIC misrepresented that its Productions were complete so I do think there's further work that needs to be done in order to restore public trust in the FDIC but at a minimum uh I do think that the announcement uh Yesterday by the FD acting chair was was a constructive one thank you thank you Mr chair i y gentem yields Mr hard excuse me heropoulos from Florida is now recognized for five minutes thank you Mr chairman
▶ 1:33:12I have my I have trouble with that name too no problem well thank you very much for putting this together chairman this has been very Illuminating especially as a first year member of the committee and it's very helpful as to get us into the history of this and it's been very uh helpful to get this going um and this my first year in the Congress we're we're trying to I know the congressman Mo and I both new to the committee are trying to kind of get under the hood and understand some of these things as it Outsider we watch the FTX Crisis happen and and we're kind of wondering where was the oversight and it was frustrating
▶ 1:33:42to see so many folks lose in many cases their life savings or significant savings and and the total disregard for their capital u one of the messages you'll hear from me consistently not only today but throughout the year is certainty and stability to me is that is not only important in business but in life especially as you try to teach that to your kids and uh and what is a little frustrating as I try to do my homework on this I watched the videos from years past before Mr gendler for example was actually in the job in the government his videoos
▶ 1:34:12showed he was actually positive about the industry thought it would be something productive and and creating using the blockchain to make sure you had that that certainty and understand what was happening and yet in some of the first few days in this committee we've learned not only that agency but also the cfpb is is doing everything they can to move Capital out of our own country and going to places like the UAE and Singapore I mean America is the land of opportunity where capital I think can strive best um with that said
▶ 1:34:42I I think I'll just ask Mr um greywall if you don't mind I I know these rapid fire question let me give you a few minutes to walk me through what you went with we also FTX and the lack of Regulation what did you all try to do in working with The Regulators to say we want to be regulated we want to stabilize this industry walk me through you got a few minutes I want to give you that opportunity because too often I'm watching these early days in Congress it's Wing wng Bing I want to hear your kind of thoughtful laid out answer
▶ 1:35:13so people can understand what good companies are trying to do versus some of those Bad actors thank you Congressman uh I referenced earlier the invitation by the prior sec chair to come in and register this was Mr gendler's constant refrain to crypto company uh cryptocurrency firms like mine that were were interested in following the law but looked at the law can see no legal basis upon which to uh pursue registration registration is a very important uh
▶ 1:35:43uh element of any sound oversight and sound regulatory framework in structure for firms not just in our industry but frankly in any industry over and over over again when we met with the SEC as I said dozens and dozens of times when we presented ideas for way for uh intermediaries like coinbase to register a way for issuers of the tokens themselves to submit disclosures that would better inform uh uh uh consumers who purchased these tokens what it is they were buying
▶ 1:36:13when we shared ideas and concepts for ways in which um the secc could coordinate its activities over Securities tokens and securities transactions with those of the FC which has authority over non-securities and commodities in particular um we thought we had an opportunity and yet after these dozens and dozens of meetings we were simply invited to to stand up step outside and never come back and a short while after that Congressman we were hit with a lawsuit
▶ 1:36:43and for the last two plus years my company and I have been in Federal District Court fighting an enforcement case where there is no allegation of fraud no allegation of abuse and we have tried at every turn to Simply get rules that we can follow thank you Mr I'll yeld back chairman yields uh the chair now recognizes Mr Moore of North Carolina for five minutes thank you m thank you Mr chair and uh to our Witnesses thank you for
▶ 1:37:14taking time to be here out of your schedules to bring this information before the committee uh just like representative Herod doas you're Mr chairman it is a tough name I had to practice it several times uh this is uh this has been a new experience I served in our state legislature in North Carolina and so uh coming here and seeing things it's it's been eye opening in a lot of ways but one of the more eye openening things that that I've seen since arriving here is how I've seen how some of our friends on the other side of
▶ 1:37:44the aisle will try to I would describe it as weaponize the regulatory system to try to Simply prevent um access to and forms of capital and it strikes me I did a little did a little research here and the country has roughly what 334 million people in it uh most recent data shows of that anywhere from 27 to 28% of the people in our country either own or use crypto So based on my I was a solid
▶ 1:38:14C student in math uh but based upon that I think that's around 90 million 90 million people in this country who have confidence in C crypto and what it seems is has has been happening by the previous administration and by the other side is is an attempt to try to use the regulatory framework to Simply tell those 90 million people that they can't invest or they can't own in crypto and I can't frankly think of anything that is more antithetical to
▶ 1:38:44a free enterprise system uh so I first of all thinking at those of you who are providing these opportunities for just ordinary consumers to be able to participate in a meaningful way in this new digital Marketplace um you know I think it's it's you know digital currency is is not only is the future frankly it is the present when nearly a third of the people in the country are actively using this and has been and I certainly don't want to repeat comments that have already
▶ 1:39:14been made so well by other members of the committee uh but you know the the the regulatory framework of trying to add in u you know the pre pressure to to the banks to not engage with crypto uh the Paul's letters the you know the opaque I guess is a way to describe it supervisory warning letters and then of course the threats tied to the camels uh rating as well and so you know what we know about any kind of any kind of currency any kind of thing is
▶ 1:39:44you know if it's if it's a legitimate matter which I would or legitimate business which this member certainly thinks that crypto is then what's going to happen is is if there simply attempts to stifle it it's going to go somewhere else where it is allowed whether it's uh in in Industries I believe banking with State regulated Banks or many cases uh going offshore so uh Mr Grill I'll just ask this question to you one it does seem to me that as as us
▶ 1:40:14Regulators are impacting the American digital asset Community uh it would appear and you can tell me if I'm wrong that it is impacting uh our ability to compete compete globally and if that is in fact the case sir are there any other countries that are more welcoming to that Financial Innovation thank you Congressman there's no question that the sclerosis that we've all operated under here in the United States for um uh the last many years I will put it that way regarding
▶ 1:40:45uh legislation regulation has led to a flight from the United States to other jurisdictions the Europeans for example have passed a market and crypto assets uh uh form of legislation that while not perfect offers a reliable steady framework within which to operate that has drawn Capital that has drawn jobs uh it was mentioned earlier Singapore another Global leader in cryptocurrency regulation they too are drawing Capital jobs and frankly
▶ 1:41:15enthusiasm and creativity that belongs here in the United States while crypto is a global technology and a global industry so much of the most important Innovations actually were developed here in America and yet through this absence of Regulation this sclerosis um we've simply pushed entrepreneurs and risk-takers appropriate risk-takers the kinds of Risk Takers we used to be proud of in this country to other parts of the world thank you very much uh Mr chairman I yield back the balance of my time
▶ 1:41:45chairman yields uh chair now recognize Mr Davidson of Ohio for five minutes um thank you chairman thanks for allowing me to wave on to this uh subcommittee I'm the chairman for National Security and elicit Finance obviously been involved in digital assets and capital markets for a while but normally wouldn't get to participate in the subcommittee so thank you uh it's a great hearing topic under the last Congress I was on the weaponization committee and we dealt with uh operation chokepoint frankly we looked at how Banks were weaponizing the bank secrecy
▶ 1:42:15act uh really not of their own initiative but under pressure from regulators and frankly the Department of Justice and even the FBI so thanks for coming time look the idea that we're referring to this as choke point 2.0 is pretty embarrassing because it means there was choke point 1.0 and that was under Obama then under Biden so we're noticing a theme hopefully we'll be clear because Congress will take action to make sure that we lock in this electoral mandate to reject the weaponized government that we've seen
▶ 1:42:45and make the most of this Market um just yesterday having taken control of the FDIC from disastrous leadership uh the Trump Administration released 175 documents Mr greywall you you highlighted a number of implications from some of those documents but I I just wanted to start with you and you know be clear that um the targeting of the industry not only affected your company but it affected Signature Bank uh Arie Frank's portraits right up there
▶ 1:43:15and he was on the board of Signature Bank he said there was no solvency issue the problem was they're banking crypto um did the improper seizure of Signature Bank uh scare the industry yes Congressman the industry was not only scared they were terrified because that was a bank that was meeting its customer requirements filling every regulatory obligation and simply because it chose to put its business in um into the hands of the crypto
▶ 1:43:46industry and its customers it was effectively told to shut down yeah they were targeted and literally the assets seized and look it kind of remind reminds me you know in a pasture uh cows not all of them have to hit the electric fence they notice one of them hits the electric fence and everybody else kind of gets the memo stay clear and it seems like that was the intent does anyone kind of disagree with that does that seem like that that was the intent of that that was absolutely the intent thank you and and look you highlighted um
▶ 1:44:16uh the collaboration that that firms were doing with regulators and you know one of those as as the uh you know Mr Campbell in addition as these the FDIC would demand letters of inquiry they would say oh give us a little more information a little more information did they ever reach a point where they had learned enough about the business model and say oh well now we understand you're greenlighted to go ahead and participate you're safe and sound did they ever do that no as best
▶ 1:44:46we know almost no Bank was ever given approval for these actions and and I think there's a Coordinating Committee I don't know really where they met or what the Nexus was you know Elizabeth Warren kind of wants to take credit for it Gary Gensler met with her often uh you know L Brainard from the FD or the FED kind of went into the administration and they they seem to be coordinated in the effort to shut down the industry uh I think that if anything you'll see a coordinated approach to kind of De weaponize that and let the
▶ 1:45:16money be the money and you know the reality is we've seen for a long time and look some of my colleagues highlighted it by saying oh it's targeting you know black or brown people or whatever but the reality is unfortunately at times in our country's history we've seen the financial services sector basically used as leverage to say oh well you're not going to bank those people are you in this case it really meant somebody with a business model it didn't mean that it was sound or unsound it just meant we don't like you you're
▶ 1:45:46not going to make those kind of people are you and that's exactly what the administration was doing to this entire sector and sadly we're seeing that happen in other sectors in nearly every state in the country U some form of uh marijuana is legal but you see U you know kind of a second tier of um back door making it illegal by saying oh you're not going to bank those people are you so people whether they're investors employees or anything else
▶ 1:46:17in a lawful sector are being debanked um um Miss alesnik could you uh give us some insight into what we could do about that thank you for the question Congressman um so I think that we need to focus on as I've said earlier the risk analysis of every uh the The Regulators need to ensure that there's a proper risk analysis being done of the risk that
▶ 1:46:48uh that's being taken on and every lawful business and customer and person uh is is entitled to access to the banking system yeah we could pick up on that we've done a lot one of those bills with safe banking hopefully we'll get something like that along the Finish Line as a result of this uh focus on choke point thanks for the opportunity and I yeld back Gman yields Mr Downey Montana is now recognized for five minutes thank you Mr chairman now as uh Montana's former
▶ 1:47:18uh regulator for Securities and insurance you know my mission was to hold back actors accountable to lower Insurance costs to reduce unnecessary regulations for Montana businesses tried to partner with business try to streamline that while making sure that uh you know we do hold those Bad actors accountable you know my job was not to tell businesses who they can work with you know the priority of The Regulators is safety and soundness and under Joe Biden the priority was picking winners and losers
▶ 1:47:49you know pushing policies that could not get enacted through Congress from suffocating fossil fuel companies to stifling digital asset innovation in the United States so my first question Mr greywall uh can you tell me what you expect Regulators to do to protect the safety and soundness of the digital ecosystem thank you Congressman I suppose to put it as simply as I can to say what they want us to do and when we do it to say what
▶ 1:48:19else we need to do in order to comply with their expectations it's the combination of refusing to lay out simple rules that we can all follow and when they have questions with uh with with compliance with those rules operating under the cloak of secrecy and using tactics such as delay and confiscation to essentially exhaust The Firm into submission thank you um Mr Campbell do Regulators treat digital asset companies differently
▶ 1:48:49from other lines of business yes sir yes uh Mr teal do you believe the choke 2.0 scheme drives companies like yours out of the United States uh Congressman two years ago we made the public statement that we were going to move 50% of our revenues offshore because of the regulatory environment we were operating in uh we grow at a very fast rate we tripled our
▶ 1:49:19size in 2023 we doubled it again last year and will likely grow at a very large rate this year we make investments if you look at last year alone of $2 billion in the United States that $2 billion results in1 billion of GDP growth jobs that are created people that get schools paid for in communities in Texas our property taxes alone fund the fire department the police department and all sorts of Public Services the fact that we have
▶ 1:49:49to look to go offshore for that which inre inrees our cost of doing business is the only way we can survive as a business when the regulatory environment is antagonistic to our business thank you I'm proud to represent Montana second district it's uh a very rural and uh sparsely populated so Mr teal when companies are forced to shut down uh or exit due to unreasonable in regulations
▶ 1:50:19what what's the future of innovation in States like Montana well unfortunately Congressman Innovation ceases to exist in those States when technology companies like ourselves move out of the state one of the um Downstream benefits for companies like us to come into States especially rural States like Montana is we have to train technicians we hire technicians we upskill them we hire a lot of veterans and we're a very proud employer of many veterans we
▶ 1:50:50upscale them to so they're able to service the technology products that we put in the field they're able to operate them install them manage them monitor them and if we pull up stakes and go there aren't other jobs for them in those regions thank you you know the United States you know must maintain its position as the hotbed for Innovation you know around the world and access to banking services is crucial for fostering growth and opportunity you know if you take issue with an industry you can
▶ 1:51:20always pass a law rather than allow unelected bureaucrats to foreclose on their ability to do business so uh thank you uh chairman for holding this uh hearing I'm happy there is a new Administration and Congress who value fostering innovation in the United States and I yield back gentlemen yields uh the chair now recognizes the ranking member Mr Green for five minutes of Texas thank you Mr chairman permit me to ask
▶ 1:51:50uh have any of you read some document from the Biden Administration or some regulator indicating that there is an operation 2.0 checkpoint or operation chokepoint 2.0 have you from the Biden Administration that said 2.0 okay so this is a madeup statement somebody concluded that this is something that sells
▶ 1:52:20so they've gone with 2.0 um I was here in 2008 when we had the downturn and it was never alleged that too much regulation caused problem I was here when Bernie made off made off with more than $60 billion it was never alleged that too regulation is what allowed him to do
▶ 1:52:50it silver Bank Signature Bank in fact my colleagues have indicated that it was The Regulators that caused the problem a lack of Regulation not all but some have so the question becomes this do you want too much regulation too little regulation or you want it to be
▶ 1:53:20the Goldilocks just right wouldn't we all but the point is given what's happening without guard rails as it relates to cryptocurrency and I believe that would you agree that we need some more guard rails anybody agree okay if you agree raise your hand just raise your hand please okay well where do the guard reils come from
▶ 1:53:51somebody might might say congress would you agree that Congress is the place where guard rails should uh emanate raise your hands please let this is okay thank you for Congress to act you have to have an act of Congress Congress hasn't been able to act for various inary reasons I don't want to get into all of it but the
▶ 1:54:23are in a tough position I I wouldn't want to be a regulator it's a tough job because if a bank fails then you didn't do enough and then if it somehow doesn't give you the kind of Regulation that you want it's much I wouldn't want to be a regulator but I do know this uh I was here to receive all of the complaints in 2008 and all of the complaints
▶ 1:54:54in the 60s I think it was when Bernie made off performed his dly deed a good many people who want less regulation won't be here to receive the complaints they they come and they go but there are some of us who have decided that we want to be here today and tomorrow and thereafter and we've been fortunate enough and blessed enough to do it so I'm not going to get angry
▶ 1:55:25with Regulators because those who are regulated contend that they're overregulation I want to fix a problem but I'm not going to take all of this and conclude that The Regulators are overregulation when you all agree that there should be guard rails at some point Congress has to to act I
▶ 1:55:55I've seen chairman Waters when she was chair and and as ranking member she and Mr McKenry work to try to give us the guard reils but it's difficult to satisfy enough members to get something done if these Banks fail and you have a
▶ 1:56:27event we will find ourselves revisiting 2008 when silver silvergate and Signature Bank when they went under one of our great fears was that this could become the start of a effect and I remember how hard our ranking member worked with others to try to prevent this so I thank you for your
▶ 1:56:57testimony and I assure you I'm going to do what I can to make sure that you're being treated fairly but I if I'm going to Heir it will be on the side of regulating and not deregulating I yeld back gentleman yields gentleman from Wisconsin Mr style is now uh recognized for five minutes the chair of subcommittee on digital assets thank you very much uh Mr chairman appreciate app all of you being here today uh as chairman of the committee uh on the subcommittee on digital assets
▶ 1:57:27I take great interest to this and appreciate uh you Mr chairman uh for waving me on uh to the committee today on what has been a incredibly uh important conversation my colleague across the aisle uh in his closing remarks for the uh for the minority uh referenced that choke point 2.0 might be a madeup statement uh but I feel like that is as if you open the door of your home the sidewalk in driveway is wet and you conclude aha but I didn't see
▶ 1:57:57the rain it's pretty obvious what's going on when you actually look behind the hood and use common sense just like you would if you open your door and you look out and your driveways wet Common Sense tells you that it rained if we look at what played out in the Biden Administration through the regulators and what played out through their pause letters which we've discussed today through informal or offline means it was pressure of financial institutions to debank digital asset firms and to
▶ 1:58:27make sure that those individuals understood that that pressure was there across the ecosystem and I think that's what we really see today at today's Committee hearing and it's the importance of not allowing as we as we discovered in choke point 1.0 with our Second Amendment rights not allowing The Regulators to drive forward a political agenda through their Authority as regulars to correctly assess risk across the system but not to put their finger on the scale as it re as as it results in their individual
▶ 1:58:57view of Any Given industry that the bank or financial system should be lending into so I think with that is kind of a stage setting what I want to do is dig in uh briefly if I can I'll start with you Mr camp and I'll I'll move along I think one of the the important parts here to discuss is kind of how Bank examiners Define traditional risk and how it's different from reputation risk succinctly can you give me the difference between those because I want to build on that yes
▶ 1:59:27uh reputational risk is essentially we believe a bank is doing something that could damage its reputation in some ways that would cause customers to disfavor it versus forms of business risk that are more objective like you're lending to very risky people and so would reputational risk could that be used as a shield for Regulators to inject uh political objectives into the banking system it certainly could be yes and you think that that was the case as it relates to to to crypto Investments well I mean there's a great example of that um paxos ran B USD in New
▶ 1:59:58York they've been regulating stable coins since 2018 and thanks to regulatory pressure that had to be shut down like I have the privilege of having built one of two stable coins that was above 10 billion and went back to zero we disrupted no markets returned every penny there was no danger to everybody and shutting it down benefited tether let me let me jump to you Mr Greywell if I can to to build on this um in your experience how do regulators Banks think about reputational risk and to what extent does the political bias or policy bias of
▶ 2:00:28The Regulators um how are they leveraging those two risk to to drive their agenda well reputation banking matters Congressman there's no question about it but it too often is used as a catchall or an excuse for other considerations that have no basis in law or frankly no basis In fairness uh there's no question that additional guidance from this Congress would be extraordinarily helpful in cabining and restricting the use of reputational risk to Simply deem uh unacceptable all sorts of Industries or individuals
▶ 2:00:58uh who happen to be out of political favor I think broadly speaking as we wrap up today's eria thank you Mr chairman for for scheduling it this is a a broader point that politics don't belong in our banking laws and what we want is The Regulators on their task to analyze actual risk in the system rather than putting their finger on the scale to drive forward their own partisan political uh or social agenda and so having today's hearing on choke point 2.0 uh in a recognition that this really was
▶ 2:01:28occurring uh by The Regulators inside the Biden Administration uh I think is important I think it's it's it's a bit um naive or or attempting to to discredit the facts when to say that the that it's not occurring um and again I go back to my analogy if you open the door of your home and the pavement is wet and your driveway is wet it rained uh and as we look back as to what happened inside our financial system under the Biden Administration um we could have a debate of whether or not You' feel like you need more evidence but I
▶ 2:01:58think the evidence is pretty clear it rained and we need to stop this and we have a real opportunity out one final point it was referenced that legislation didn't get done uh in the previous Congress under the Biden Administration the good news is we have Republican unified control and I think we got a great opportunity uh for Congress to act look forward to working with everybody Mr chairman ield back chairman yields uh before we adjourn I'm going to take a point of personal privilege and yield to the ranking member thank you again for your kindness
▶ 2:02:29Mr chairman uh Mr chairman sadly today and to a certain extent happily we have one Among Us who is going on to bigger and better things she has been an outstanding public servant a brilliant brilliant brilliant asset to the committee and that she has worked with us many of the things that we have been able to do successfully y we can contribute to or attribute to her and her her Brilliance so today uh Esther
▶ 2:02:59Kong is going to be leaving us shortly this is her last hearing and I would hope that we respect her and appreciate her enough to give her a round of applause with that Mr chair I will your back chairman yields uh well we'd certainly like to thank our Witnesses for their testimony today I think it's
▶ 2:03:29clear we need the FDIC to provide clear guidance and Regulatory responsibility for the digital asset industry Congress and this committee will create a framework for digital assets regulation but credential Regulators must immediately allow the crypto industry access to financial services without objection all members will have five legislative days within which to submit additional written questions for the w witnesses to the chair questions will be forwarded to the witnesses for their response I ask our witnesses to please respond no later
▶ 2:03:59than March 31st 2025 this hearing is adjourned thank you all for