Fed's Bold Move to End Crypto Debanking Could Change Everything

Last month, Jack Mallers, CEO of crypto payments firm Strike, posted a single line on social media that went instantly viral: "JPMorgan closed all my accounts without cause." It was a stark reminder of the crypto industry's biggest banking nightmare – debanking.

Now, just days after JPMorgan admitted to closing more than 50 accounts belonging to President Donald Trump following the January 6, 2021 Capitol attack, the Federal Reserve has proposed a rule that could fundamentally change how banks treat crypto companies.

The End of 'Reputation Risk'

The Fed's February 23rd proposal would eliminate "reputation risk" from bank supervision entirely and bar supervisors from pressuring banks to cut ties with politically disfavored but lawful businesses – including crypto firms.

"We have heard troubling cases of debanking where supervisors use concerns about reputation risk to pressure financial institutions to debank customers because of their political views, religious beliefs or involvement in disfavored but lawful businesses," said Vice Chair for Supervision Michelle Bowman.

The timing isn't coincidental. JPMorgan's recent admission that it closed Trump-related accounts in February 2021 – just a month after January 6th – has reignited debates about financial institutions wielding political power through account closures.

Crypto's Banking Drought

For crypto companies, banking relationships have been the industry's Achilles' heel. Major exchanges like Coinbase and Kraken, along with countless individual crypto entrepreneurs, have faced account closures or service denials simply for their involvement in digital assets.

The proposed rule would codify what the Fed already announced in July 2024 – removing reputational factors from bank examinations. But this goes further, explicitly prohibiting supervisors from "encouraging or compelling" banks to deny services to customers in "politically disfavored but lawful business activities."

Particularly noteworthy is the Fed's intention to include "permitted payment stablecoin issuers" within its definition of covered banking organizations – a move that could directly benefit crypto-native firms seeking traditional banking services.

The Real Test: Will Banks Bite?

Here's where it gets interesting. The Office of the Comptroller of the Currency already removed reputational factors from its supervision last year. The Fed made similar announcements. Yet crypto debanking continues – Mallers' case being just the latest example.

Removing regulatory pressure is one thing. Changing bank behavior is another. Financial institutions still face complex anti-money laundering (AML) and know-your-customer (KYC) requirements when dealing with crypto firms. Many banks may simply find it easier to avoid the sector altogether, regardless of regulatory pressure.

The 60-day comment period starting February 23rd will reveal whether banks genuinely want clarity or prefer the status quo of crypto avoidance.