OCC: Nine major US banks ban Crypto, Department of Justice intervenes in investigation

According to a survey conducted by the Office of the Comptroller of the Currency (OCC), between 2020 and 2023, the nine largest banks in the United States restricted financial services to politically sensitive industries, with cryptocurrencies being the most affected. The OCC stated that these banks, when providing financial services, made inappropriate distinctions based on their clients’ legitimate commercial activities. Measures against cryptocurrencies included restrictions on “issuers, exchanges, or custodians.” The investigation is still ongoing and may submit its findings to the Department of Justice.

OCC Investigation Reveals: 9 Major Banks Implement De-Banking Policies

(Source: OCC)

On December 10, the banking regulatory authority announced that preliminary findings show that over the past three years, major banks “have made inappropriate distinctions among clients based on their legitimate business activities” when providing financial services. The OCC reviewed the largest nationwide banks under its supervision, which represent the core of the American banking system, holding trillions of dollars in assets and accounts for hundreds of millions of customers.

The OCC indicated that these banks have either implemented policies restricting banking access or required higher-level reviews and approvals before providing services to certain clients, though no specific details were provided. This vague wording leaves room for banks to defend themselves but also sparks curiosity about their actual practices. How are these restrictions designed? Which specific cryptocurrency companies are affected? What are the criteria for service denial? These questions remain unanswered.

Following President Donald Trump’s signing of an executive order in August, the OCC launched a review that directs banks to examine whether they have discriminated against individuals based on political or religious beliefs in closing accounts or denying services. The investigation initially focused on political discrimination but, as it deepened, the plight of the crypto industry emerged, becoming one of the most typical cases of de-banking.

“It is unfortunate that some of the largest US banks believe that these harmful de-banking policies are appropriate use of their government-granted charters and market power,” said Acting Comptroller of the Currency Jonathan Gald. His words were very stern, directly questioning whether banks have abused their government-granted powers. The US banking system is built on government regulation and protections; the Federal Deposit Insurance Corporation (FDIC) insures deposits, and the Federal Reserve provides liquidity support during crises. This privileged status implies that banks should serve the public interest rather than arbitrarily refuse services to legitimate businesses.

Cryptocurrencies Become Targeted

The OCC report found that, besides cryptocurrencies, other industries facing banking restrictions include oil and natural gas exploration, coal mining, firearms, private prisons, tobacco and electronic cigarette manufacturers, and adult entertainment. This list reveals the political and ethical logic behind de-banking: these industries are controversial either due to environmental concerns (oil, coal) or social ethics (firearms, tobacco, adult entertainment).

However, the situation with cryptocurrencies is different. The OCC states that measures taken by banks against cryptocurrencies include restrictions on “issuers, exchanges, or custodians,” often attributed to concerns over financial crimes. This wording suggests that banks associate cryptocurrencies with money laundering, scams, and other financial crimes as reasons for service denial.

Specific Targets of Bank Restrictions on Cryptocurrency Services

Stablecoin issuers: For example, institutions like Circle (USDC issuer), Paxos, and others may face bank account restrictions.

Cryptocurrency exchanges: CEX encounters obstacles when opening corporate accounts or handling fiat currency inflows and outflows.

Blockchain infrastructure companies: Firms providing custody, payments, or other crypto-related services are listed as high-risk clients.

“Although many of these policies are publicly implemented and even publicly announced,” Gald added, “some banks still insist they are not involved in de-banking activities.” This contradictory stance further angers regulators. Some banks publicly claim to welcome innovation and fintech, but in practice, they shut the door on cryptocurrency companies. This double standard damages market fairness.

The OCC report states that the investigation is ongoing and may submit results to the Department of Justice. This could lead to legal consequences for banks. If the Department of Justice steps in, antitrust lawsuits or discrimination charges could be filed, forcing banks to change policies and compensate affected companies. This would be a major event in US financial regulation, marking an important check on bank power.

Critics Point to FDIC and Fed as the True Culprits

However, the OCC report has faced criticism from professionals. Nick Antonelli, a policy analyst at the libertarian Cato Institute, said the report “has many shortcomings” and did not mention “the most famous reasons for bank failures.” He stated, “The report criticizes banks for severing ties with controversial clients, but fails to mention that regulators explicitly evaluate banks based on their reputation.”

This criticism hits at the core issue: banks’ refusal to serve crypto clients is likely driven by regulators’ negative attitudes toward cryptocurrencies, and banks fear that servicing these clients could harm their regulatory ratings. In the US banking system, regulators conduct periodic assessments of banks’ financial health, risk management, and reputation risks. If a bank is found to have dealings with high-risk or controversial clients, it may be penalized in evaluations, affecting its expansion and financing costs.

“Even worse, the report appears to blame banks for cutting ties with crypto companies but fails to mention that the FDIC explicitly instructed banks to stay away from such companies,” Antonelli added. This accusation is very serious, implying that the real drivers of de-banking are not banks themselves but regulatory agencies like the FDIC.

Earlier this month, Republican members of the House Financial Services Committee reported that during the Biden administration, the FDIC’s so-called “cease and desist letters” fostered de-banking in the digital asset ecosystem. These letters, while not formal regulatory orders, effectively serve as warnings to banks to steer clear of certain industries to avoid regulatory risks.

Caitlin Long, founder and CEO of crypto-focused Custodia Bank, said the main culprits behind the Biden-era de-banking are the FDIC and the Federal Reserve, not the OCC. She added, “The OCC’s defense is that this report only covers large banks. Combating crypto is not a priority for large bank regulation, unlike the focus on small and medium-sized banks.”

Long’s view reveals a tiered picture of de-banking. While big banks like JPMorgan have restricted crypto services, the more severe impacts are on small and medium-sized banks. Many smaller banks specializing in serving crypto firms, such as Silvergate Bank and Signature Bank, either failed or were forced to close crypto operations in 2023, widely believed to be deliberate actions by regulators.

Policy Shifts Under Trump and Industry Expectations

The investigation initiated by the Trump administration’s executive order marks a significant shift in US government attitudes toward cryptocurrencies. During Biden’s term, there was a more cautious or even hostile stance, with SEC Chair Gary Gensler suing multiple crypto companies, and the FDIC and Fed indirectly restricting banking services. In contrast, the Trump administration openly supported the crypto industry, dismissed Gensler, and appointed regulators friendly to crypto.

Although the OCC report has been criticized as “far from expectations,” it at least brings de-banking issues to the forefront, creating space for subsequent policy adjustments. If the Department of Justice truly gets involved, it may compel banks to reassess their policies toward cryptocurrencies.