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Sen. Toomey Questions FDIC on Allegations of Discouraging Banking Relations with Crypto Entities

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Pennsylvania Senator Pat Toomey, ranking member of the United States Senate Banking Committee, has sent a letter to Federal Deposit Insurance Corporation (FDIC) director and acting chairman Martin Gruenberg informing him of allegations made by a whistleblower concerning FDIC activities. The senator suspects the FDIC "may be improperly taking action to deter banks from doing business with lawful cryptocurrency-related (crypto-related) companies.”

[Andersen, D. Senator asks FDIC about allegations it discourages bank relations with crypto companies. (Accessed August 18, 2022)].

Specifically, "Toomey wrote that there is corroboration of whistleblower allegations that 'personnel in the FDIC’s Washington, D.C. headquarters are urging FDIC regional offices to send letters to multiple banks requesting that they refrain from expanding relationships with crypto-related companies, without providing any legal basis for sending such letters.” [Id].

With respect to the sending letters to banks to refrain from expanding relationships with crypto entities, Toomey disclosed:

As I understand it, in one or more of these cases, a bank planned to give customers access to a crypto-related company’s trading platform via the bank’s mobile or internet banking app. Bank customers would have received clear disclosures that neither the crypto-related company nor the digital assets themselves are FDIC-insured, and any trading by the bank’s customers would take place via the crypto-related company’s platform. This arrangement appears similar to the common practice of banks partnering with third-parties so customers can access services like stock trading platforms.

[Toomey, P. Letter to Gruenberg. (Accessed August 18, 2022)].

"In addition, Toomey wrote that there were reports that staff at FDIC headquarters took the highly atypical step of contacting staff in a regional office to urge them to downgrade the status of a loan to a crypto-related company [...]" [Andersen, supra]. In this regard, Toomey wrote:

If reports are true that there was nothing unusual about this loan (other than that it was to a crypto-related company) and that the loan amount was too small to affect the bank’s supervisory rating even if it had to write off the entire loan, this episode raises important questions. FDIC regional office staff reportedly interpreted the involvement of FDIC headquarters in this matter as an effort to change how loans to crypto-related companies are generally classified and to deter banks from extending such loans in the future.

[Toomey, supra].

"Judging from Toomey's letter, the alleged letters from the FDIC were sent on or around June 6" [Andersen, supra].

"The letter asks Gruenberg to account for these accusations and provide documentation of FDIC’s work with crypto as well [Mansata, S. Senator Toomey Questions FDIC Behavior with Crypto Companies. (Accessed August 18, 2022)]. More specifically the letter poses six (6) questions for the FDIC to respond to:

  1. Since you became Acting FDIC Chairman on February 5, 2022, has any FDIC official or employee instructed, requested, or suggested that FDIC regional offices ask banks to refrain from doing business with crypto-related companies and/or refrain from expanding their relationships with such companies? If so, please explain why and identify the regional offices that were contacted.
  2. Since you became Acting FDIC Chairman on February 5, 2022, has any FDIC official or employee provided FDIC regional offices with letters to send banks asking them to refrain from doing business with crypto-related companies and/or refrain from expanding their relationships with such companies? If so, please provide copies of these letters and identify the regional offices that received them.
  3. On or about June 6, 2022, did any FDIC official or employee send any communications to any FDIC regional offices instructing them to ask banks to refrain from expanding their relationships with any crypto-related companies and/or to refrain from entering into such relationships? If so, please explain why and identify the regional offices that were contacted.
  4. On or about June 6, 2022, did any FDIC official or employee send to any FDIC regional offices a memorandum regarding procedures for reviewing notifications of engagement in crypto-related activities? If so, please provide a copy of this memorandum and identify the regional offices that were contacted.
  5. Has the FDIC legal division given an opinion on the legality of the FDIC asking banks to end, pause, or limit their relationships with crypto-related companies and/or to refrain from entering into such relationships? If so, please provide a copy of any such legal opinion. If not, why not?
  6. Since you became Acting FDIC Chairman on February 5, 2022, has any FDIC official or employee instructed, requested, or suggested that any FDIC regional office personnel should review an individual loan between a bank and a crypto-related company and downgrade the loan’s classification? If so, please describe and provide an explanation for every such instance.

[Toomey, supra].

"The FDIC is one of the two federal agencies insuring savings in American depository institutions. Back in April, the FDIC revealed that federal insurance is excluded for crypto company failures" [Mansata, supra].

"Toomey is an aggressive crypto advocate. He was an outspoken critic of the policies of the Securities and Exchange Commission. He is also the author of the Stablecoin TRUST Act and introduced the legislation accompanying the Virtual Currency Tax Fairness Act of 2022 in the Senate. He has expressed reservations about the issuance of a US central bank digital currency" [The Bharat Express News. Senator Asks FDIC About Allegations It Discourages Banking Relationships With Crypto Firms. (Accessed August 18, 2022)].

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