Banks can serve crypto clients as long as they can manage the risk, Fed Chair Jerome Powell says

Banks can serve crypto customers as long as they can manage the risk, said U.S. Federal Reserve Chair Jerome Powell, amid allegations that the crypto industry is being cut off from financial institutions. 

"The threshold has been a little higher for banks engaging in crypto activities and that's because they're so new," Powell said on Wednesday when asked by a reporter during a Federal Reserve press conference about risks associated with cryptocurrency. 

The central bank is not against innovation, he added. 

Crypto firms have complained about the difficulty behind establishing and maintaining bank accounts in the U.S. Following the collapse of crypto exchange FTX in late 2022, several governmental agencies, including the Federal Reserve, issued warnings on " crypto-asset risks ."

Later, in 2023, Castle Island Ventures co-founder Nic Carter coined the phrase "Operation Choke Point 2.0" to describe the alleged crackdown coordinated by government agencies. The phrase is a reference to the Obama-era "Operation Choke Point," a U.S. Department of Justice initiative that sought to limit banking services for industries considered high-risk for fraud and money laundering, including payday lenders and firearm dealers. 

Since then, Coinbase lodged a lawsuit against the Federal Deposit Insurance Corporation, through consultant firm History Associates, for allegedly cutting off the crypto industry from the banking sector. The FDIC has said that "banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation."

On the Hill

Crypto debanking has come into the spotlight in Washington as lawmakers. House Financial Services Committee Chair French Hill has said he plans to to investigate debanking and said his committee would take a "strong position." Last week, the U.S. House Oversight Committee also said it was investigating alleged debanking in the crypto industry. Lawmakers have also worked on a number of market structure bills for crypto, but none have yet passed into law. 

"I do think it would be helpful if there were a greater regulatory apparatus around crypto," Powell said on Wednesday. "That's something Congress was working on quite a lot." 

Big bank CEOs recently opened up about their struggles with crypto. JPMorgan Chase's Jamie Dimon said his bank works with a few crypto firms but is at risk of paying millions of dollars in fines if something were to go wrong, he said during a podcast called The Unshakeables co-produced by Chase for Business.