The US FDIC has released a signal of loosening: Will banks become friendly to crypto institutions?

In the United States, the cryptocurrency industry has always been on the brink of the financial world, eager for mainstream recognition, but is often blocked by an invisible wall. The name of this wall is called "reputation risk". For many years, American banks have always been cautious when dealing with crypto companies, fearing that they will touch the red line of regulators. However, the official account of the Republican Party of the US Senate Banking Committee recently: the US Federal Deposit Insurance Corporation (FDIC) may follow the pace of the US Currency Complaint (OCC) and cancel the use of "reputation risk" as a consideration for bank supervision. This is called "a huge victory for the crypto industry" by US cryptocurrency and artificial intelligence czar David Sacks. So, what's going on? What changes will it bring to the cryptocurrency industry? What does it mean for industry practitioners?

1. Reputation risk: The "tightening curse" between banks and encryption

To figure out the meaning of this matter, we have to first talk about what "reputation risk" is. Simply put, reputation risk refers to the risk that a bank may damage its reputation due to certain business or behavior. For example, if a bank is involved in a controversial industry, its customers may run away, public opinion may ferment, and even bring lawsuits. This kind of risk sounds reasonable, after all, who doesn’t want to keep his good reputation? But in actual operation, this standard becomes vague and subjective.

The US regulator once defined reputational risk: "Negative publicity about the business behavior of an institution (regardless of whether it is true or false) may lead to a decrease in customers, a lawsuit or a decline in income." You see, this definition is as broad as a basket, and everything can be put into it. What's the result? The regulators took this basket and pointed fingers at the bank's business. Especially in the cryptocurrency industry, reputation risks have become an invisible "tight curse". Many banks are worried that cooperating with crypto companies will make regulators feel "risk", so they simply close the door and don't even open their accounts.

For example, big-name crypto companies like Coinbase have publicly complained about how difficult it is to find a bank willing to cooperate in the United States. Sometimes, they even have to go overseas to open an account. This phenomenon has a not-so-good name in the industry - "Operation Chokepoint 2.0", which means that through financial supervision, it will hold the neck of the crypto industry in disguise.

2. Policy relaxation: A new dawn for the crypto industry?

Just as the crypto industry was struggling, things began to turn around. The Federal Deposit Insurance Corporation (FDIC) will follow the U.S. Currency Complaint (OCC) to cancel the practice of using 'reputation risk' as a banking regulatory factor. If this becomes a certain fact, it means that banks in the past rejected crypto companies largely because they were afraid of the regulators causing trouble. Now that this "trouble" is gone, banks can cooperate with crypto companies with more confidence. Imagine if you were the boss of a crypto company and you couldn’t find a bank that was willing to open an account for you in the past. Now that the situation has changed, can you breathe a sigh of relief and focus on your business instead of asking for help everywhere?

More importantly, this is not a small move by a single institution, but a signal of the trend of US financial regulation. U.S. Senator Tim Scott also proposed a bill called the Financial Institutions Risk Management Act (FIRM Act), which is to completely limit regulators to use reputation risks to suppress banks. This series of actions combined makes people feel that the US government may be shifting from "too strict management" to "give some space", acknowledging that the crypto industry is a serious economic field.

3. How to view the industry: Calm thinking outside of cheers

Bitwise CEO said in an interview: "This is a great thing for us. It will be easier to cooperate with banks and the operating costs can also be reduced." Many practitioners feel that without the hurdle of "reputation risk", crypto companies can finally take a breath and concentrate on innovation and grab the market.

But no matter how cheering, not everyone feels that everything is going well. Aiying believes that whether banks are willing to cooperate depends not only on regulatory policies, but also on their own risk control capabilities for compliance and anti-money laundering. Most companies are still very weak in this area, or it is also an instinct to be weak. After all, if they are strong, they will not be able to do business. Therefore, it is normal for banks to worry about being involved in crypto companies.

4. Conclusion: The first step toward maturity

The FDIC's cancellation of "reputation risk" as a regulatory factor is a significant milestone for the crypto industry. It cleared a major obstacle to cooperation between banks and crypto companies and also showed that the U.S. attitude towards crypto is quietly changing. As David Sacks said, it was a "huge victory." But victory is victory. If the crypto industry wants to truly gain a foothold, it is not enough to rely solely on policy relaxation. The technology can keep up with it, the compliance can be done well, and the public's trust must be accumulated little by little.

The road ahead is still long, but at least now, there is a glimmer of light in the crypto industry. Perhaps in a few years, when we look back, we will find that this change is not just a small episode, but the starting point for cryptocurrencies to enter mainstream finance.