by Stephen T. Gannon, Max Bonici, Elizabeth Lan Davis, and Kristal Rovira
Left to Right: Stephen T. Gannon, Max Bonici, Elizabeth Lan Davis, and Kristal Rovira (photos courtesy of Davis Wright Tremaine LLP)
How subjective supervisory standards suppressed innovation and damaged innovators.
“The power to regulate—in addition to the power to tax—is the power to destroy.”
Peter Wallison, Judicial Fortitude (2018)
As we have previously noted, we expect that the second Trump Administration will be significantly more favorable to crypto than the Biden Administration, especially with the recent appointment of David Sacks as the Administration’s “Crypto Czar.” We anticipate that in short order the new Administration will address “de-banking,” a regulatory practice that has vexed the digital asset industry—and banking in general—over the last several years. In this context, “de-banking” means canceling banking services to crypto entities and individuals associated with them or crypto activities. It is a practice that has been sharply criticized and has become even less comprehensible as the digital asset industry has matured and embraced (indeed, has sought) reasonable regulation. In the last several days the attention paid to this issue has increased sharply as a result of comments by Marc Andreessen on the Joe Rogan podcast.
Regrettably, the de-banking problem is not new. De-banking crypto is simply the latest variation of regulators using vague and amorphous standards to supervise bank conduct through the subjective lens of what the federal banking agencies call “reputational risk.”
Below we discuss how we got here and some ways forward.