Former President Donald Trump recently signed an executive directive aimed at curbing what his administration viewed as unjustified banking restrictions targeting businesses in the cryptocurrency space.
Could this directive effectively dismantle what some are calling Operation Choke Point 2.0? Will financial institutions that previously denied services to crypto ventures now be obligated to reverse those decisions? Custodia Bank’s Founder and Chief Executive Officer, Caitlin Long, delves deeper into the nuances of this new order.
Independent Oversight Introduced in Debanking Executive Order
Long identifies a key element within Trump’s debanking directive: the establishment of an autonomous supervisory role. This, she argues, underscores the previous administration’s misgivings about the established federal banking regulators, namely the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve (Fed), and the Office of the Comptroller of the Currency (OCC).
The directive assigns the Small Business Administration (SBA), a regulator outside the traditional banking sector, to oversee debanking issues, implying a lack of confidence in the existing agencies’ willingness or capacity to deal with politically-motivated and unfair practices.
SBA Leadership: A Pro-Bitcoin Perspective with Kelly Loeffler
Former President Trump appointed Kelly Loeffler, a former senator, business leader, and known supporter of Bitcoin and the broader crypto industry, to head the SBA. This choice resonates powerfully within the crypto community, given Loeffler’s past as CEO of Bakkt, an institutional platform focused on Bitcoin futures, before she entered politics.
Placing her in charge of monitoring debanking suggests a serious commitment to reform from the administration and highlights a potential distrust in the impartiality of traditional regulatory bodies.
Potential Political Bias Within Banking Agencies
Long draws attention to the possible political inclinations among staff at agencies such as the Fed and FDIC. Examination of campaign finance records indicates that a significant portion of donations from Fed and FDIC personnel favored Democratic candidates in recent elections, with Long citing a figure as high as 92% for Democrats in 2024.
This raises concerns that regulatory decisions may have been influenced by political partiality, particularly considering the documented instances of crypto-related “debanking” during the previous administration.
Defining Politicized and Unlawful Debanking
Trump’s debanking directive defines “politicized/unlawful debanking” broadly, emphasizing “lawful business activities” rather than specifying crypto or any specific industry. This definition implies that banks cannot deny services solely based on a business’s involvement in the crypto sector, provided they adhere to legal standards. The order aims to protect not only crypto firms but also any legitimate business potentially facing discrimination based on political factors. Long summarizes:
“Banks that denied service or engaged in debanking of legal crypto enterprises are now potentially liable.”
The Key Test: Custodia and Crypto-Focused Banks
Custodia Bank experienced debanking previously, after regulators allegedly pressured various banks to sever connections due to its crypto-related operations, despite the bank’s clear record of regulatory compliance.
Long contends that the effectiveness of Trump’s debanking directive hinges on whether banks that previously debanked Custodia (and other similar crypto firms) are now required to reinstate them. The measure of the directive’s success, therefore, will be reflected in practical improvements in banking accessibility for businesses operating in the crypto space.
“If we are reinstated, then the executive order has achieved its purpose.”