We are at an inflection point. The ongoing banking crisis has created questions about the relationship between digital assets, blockchain technology and the U.S. banking system. Forthcoming, there will be increased scrutiny of the industry and its relationship with traditional financial services. It is critical that we respond to this reality with viable solutions.

To that end, we have curated a list of talking points for our membership focused on the potential of blockchain technology as the solution, not the problem, for the U.S. banking system and solving the issue of industry access to banking services. 

1. What happened: On March 8, Silvergate Bank voluntarily commenced the process of liquidation. This was followed by regulatory takeovers of Silicon Valley Bank on March 10 and Signature Bank on March 12. Poor risk management and internal controls, mismatched duration of investments against deposits, rapid asset growth, and overreliance on uninsured deposits, among other things, were critical regulatory deficiencies leading to these banks’ demise. 

2. Crypto has a banking problem, but banking doesn’t have a crypto problem. Each of these failures is the result of poor risk management of customer deposits and a subsequent bank run. Regulators pressuring banks to be hyper-cautious in working with blockchain companies without providing regulatory clarity has concentrated risk in a small subset of the banking industry. This has led to less banking options for crypto companies and has ensured that only a few bank entities are exposed to industry-specific market events. 

3. Crypto and blockchain technology is a solution. The recent failures would not have been possible in a decentralized, transparent, auditable, and over-collateralized crypto asset ecosystem. The transparency of blockchain technology eliminates the opacity and regulatory mistakes of the traditional financial system. For example:
   1. Transparency: Blockchain technology can help improve transparency by creating an immutable and transparent ledger of all transactions. This would allow regulators to monitor and audit financial transactions in real-time and detect any suspicious activities.
   2. Smart Contracts: Smart contracts can be used to automate financial transactions and enforce regulatory compliance. This can help reduce the risk of human error and ensure that transactions are executed according to regulatory requirements.
   3. Identity Verification: Blockchain technology can be used to create a secure and decentralized identity verification system. This would allow banks and other financial institutions to verify the identity of their customers more easily and securely.

4. Crypto needs banking partners. The blockchain and digital assets industry’s three largest banking partners are no longer in existence. This void must be filled and businesses are searching for safe, effective alternatives but U.S. options are limited.
   1. Any efforts from federal banking agencies to undermine U.S. competitiveness, including attempts to sever crypto firms’ relationships with their U.S. banking partners, presents a number of legal, ethical, financial stability, and national security concerns.
   2. Unlawful banking discrimination campaigns against any legal industry should be alarming to policymakers, regulators, and to the general public. And for the digital assets space in particular, the Chamber of Digital Commerce stands ready to push back against any attempts to thwart consumer and investor demand for digital asset products & services.

5. If regulators continue to discriminate, the U.S. will lose. The reputational risks of crypto have led to increased regulatory pressures on bank partners to stay away from working with lawful businesses. Without consistent, reliable access to the U.S. banking system, industry is being forced to relocate to more welcoming jurisdictions. This is a troubling precedent and a threat to U.S. competitiveness and national security. 

What we’re advocating for:

1. We encourage the appropriate congressional members and committees to utilize their oversight and investigatory powers to illuminate how coordinated actions by the federal prudential regulators (Federal Reserve, Office of Comptroller of the Currency, Financial Depository Insurance Corporation) have impacted the relationship and provision of services between U.S. banks and the blockchain and digital asset industries.
   1. See: Letter from House Majority Whip Tom Emmer (R-MN) to FDIC Chairman Martin Gruenberg “regarding reports that the FDIC is weaponizing recent instability in the banking sector to purge legal crypto activity from the U.S.” (March 15)
   2. See: Letter from Senator Bill Hagerty (R-TN) to the bank agency heads demanding answers on application of pressure on financial institutions to cut off services to licensed, legally operating cryptocurrency and digital asset companies. (March 9)

2. We encourage passage of S.245,the “Financial Institution Customer Protection Act,” which would prohibit a federal banking agency from requesting or ordering a depository institution to terminate a customer account unless: (1) the agency has a valid reason for doing so, and (2) that reason is not based solely on reputation risk. 

3. As regulators look to build renewed confidence in our financial system, digital assets and blockchain should play an integral role in updating our banking infrastructure. We encourage the Biden Administration to immediately appoint a ‘Blockchain and Cryptocurrency Specialist’ within the Office of Science Technology and Policy as statutorily required by the CHIPS and Science Act of 2022.