Coinbase Challenges Political Banking Rule Impacting Crypto Firms

Coinbase has officially opposed what it labels a "political" banking regulation, which it argues has pressured banks to sever connections with cryptocurrency firms. This action adds significant weight to the intensifying discussion in the U.S. surrounding debanking and regulatory overreach.

Key Takeaways

Coinbase has challenged a banking rule it claims pressures banks to cut ties with crypto firms.
The company supports the OCC and FDIC’s proposal to eliminate the "reputational risk" standard.
Coinbase argues that this vague concept has been used to unjustly restrict legitimate crypto operations.
The company's findings suggest a pattern of covert regulatory supervision that neglects transparency.
The broader debate continues over U.S. regulators' treatment of crypto firms and their banking relationships.

Coinbase Challenges Political Banking Rule Impacting Crypto Firms

In a public announcement and a comprehensive comment letter submitted to federal regulators, Coinbase accused banking overseers of misapplying the idea of "reputational risk" to silently limit lawful cryptocurrency activities during the Biden administration.

Coinbase Backs OCC and FDIC Proposal to Eliminate Reputational Risk

Faryar Shirzad, Coinbase’s chief policy officer, expressed the company's support for a collaborative proposal by the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) aimed at removing the reputational risk standard from their supervisory guidelines.

Shirzad contended that examiners from both agencies have utilized this concept as a “supervisory hammer” to coerce banks into discontinuing services for crypto clients—an approach the industry has dubbed Operation Chokepoint 2.0.

In its letter to the OCC and FDIC, Coinbase characterized reputational risk as ambiguous, subjective, and disconnected from any measurable financial damage or legal infractions. The company asserted that bank supervision should concentrate solely on clear risks related to safety, soundness, and legal compliance, cautioning that concerns about public perception could lead to political bias.

According to Coinbase, reputational risk was employed to deter banks from delivering essential services to cryptocurrency firms, even when these firms were operating legally.

The exchange reported experiencing these pressures directly. Through Freedom of Information Act requests and subsequent legal action, Coinbase revealed internal communications from regulators, which it claims illustrate that cryptocurrency firms were targeted behind closed doors.

The company indicated that such actions jeopardized its operations and complicated banking access for its employees, reflecting a wider trend of clandestine supervision that shielded regulators from public scrutiny.

Coinbase is calling for regulators to take further action beyond the current proposal by fully banning any use of reputational risk or similar concepts in banking oversight. The company warned that even partial restrictions would permit the practice to resurface under different terminology, giving banks the liberty to reference public or political perceptions as reasons for denying services.

Moreover, Coinbase urges that clearer guidelines should be established, linking adverse supervisory actions to clear factors like credit, liquidity, operational, or compliance risks.

U.S. Regulators Investigate Bank Restrictions on Crypto Firms

This dispute lies at the heart of a larger political battle regarding cryptocurrency debanking in the U.S.

Crypto executives and Republican legislators have maintained that regulators utilized informal guidance, increased scrutiny, and off-the-record warnings to steer banks away from digital asset clients without formally banning them.

Regulatory agencies have consistently denied orchestrating such efforts, asserting that banks make independent decisions guided by anti-money laundering obligations and safety concerns.

The issue gained renewed attention in December when JPMorgan Chase CEO Jamie Dimon dismissed allegations that his bank was engaging in politically motivated debanking.

His remarks came after public statements from crypto leaders, including Jack Mallers, CEO of Strike, who noted that his accounts were closed without any clear explanation.

Dimon clarified that JPMorgan operates only in accordance with legal and regulatory requirements, stressing an ideological neutrality that has been echoed by other major banks facing similar accusations.

Regulators are currently conducting comprehensive reviews; in December, the OCC released preliminary findings indicating that all nine of the largest U.S. national banks imposed inappropriate restrictions on legitimate businesses, including cryptocurrency firms, between 2020 and 2023.

Comptroller of the Currency Jonathan Gould noted that these practices were widespread and represented an improper use of national bank charters.

This review was initiated following an executive order by President Donald Trump in August, directing federal agencies to ensure fair access to banking services.