Tim Scott Chairs Senate Banking Committee Hearing Investigating Debanking

[Laughter] I suggested the committee was did did it work okay now that we have a quorum the committee will come into order and we will begin the executive session on the committee's budget resolution I move to approve the committee's budget resolution by Voice vote if there's any there's no discussion all in favor say I I those oppose nay the eyes have it the Resolution is adopted and is hereby ordered reported to the full Senate I ask unanimous consent that the staff be allowed to make Technical and conforming changes and that the Cordon rule be waved

any objection hearing no objection so ordered the executive session is now adjourned and we will proceed to the hearing I'd like to invite the witnesses to come sit at the table thank you good morning and thank you all for Being with us today we'll we're here to address an issue that strikes at the core of what it means to live in a free and fair Society access to financial services every federally legal business and law-abiding citizen deserves to be treated equally regardless of political views or ideological leanings this is an issue that is deeply personal

to me my grandfather was growing up in the Jim Crow South Banks did business with people they felt looked the right way Based on the color of their skin one's ability to get a loan to finance their home or start a business was based primarily on the color of the skin and in the 1940s my mother experien the same red lining that has been persistent pervasive and unfortunate for decades thankfully our nation continues to evolve in the right direction and in the 1990s when I was starting my small business I went to a bank and

looked for an opportunity to get a loan I'll say Without any question at that time as a kid growing up in poverty and single parent household my best asset Mr rickets was was a 1990 10-year-old car with 253,000 miles one would not consider that an asset perhaps a liability but it was my only means of transportation and I will tell you without doubt for me it was an asset the bank however completely helped me understand it was not uh however in those days someone could get a character Loan because of your time in a community

because of your relationships with local and Community Banks and because of that Not only was my financial life change not only did my American Dream become a reality but more importantly my mother's American Dream became a reality we saw the strengthening of confidence in our banking system because things had changed in the right direction with that loan everything seemed to get better had I not gotten that line of credit I may not be here chairing this committee today you see my story is so consistent with so many other stories that really reflects positively on the

American dream in this country access to credit is one of the cornerstones of building your American Dream owning a home and starting a business are challenging Journeys filled with complexities and achieving success is never a guarantee nor should it be That's why access to financial services is so important the United States is home to a vast competitive network of Banks and payment providers creating one of the most robust diverse Financial Services ecosystems on the planet it is this incredible landscape that offers countless opportunities for homeowners and entrepreneurs to build a healthy foundation and make strides

towards achieving their version of the American dream however it is incredibly alarming And disheartening to hear stories about financial institutions cutting off services to digital asset firms political figures and conservative aligned businesses and individuals under the Biden Administration we've seen the rise of what many are calling operation choke point 2.0 where Federal reg Federal Regulators exploited their power pressuring Banks to cut off services to individuals and Businesses with conservative dispositions or folks aligned with Industries they just didn't like like the color of one skin in my family's history I wholeheartedly believe that debank someone over

their political ideology is unamerican and goes against the core values that our nation was founded upon today we'll have an opportunity to hear from Anchorage digital CEO whose OCC Chartered Bank was debanked all glory bank's CEO who started a bank to serve those who had been debanked and from a legal expert with extensive experience navigating these regulatory abuses and from a policy expert at the Brookings institution this hearing will also examine how practices similar to the original operation choke point have persisted despite assurances that they would end we'll investigate the role both regulators and Financial

institutions have played in these harmful practices which hurt not just businesses but also consumers and our entire economy this issue should concern every single American regardless of political affiliation and that's why I'm committed to a bipartisan solution to stop this form of discrimination this hearing is just the beginning we are here to shine a bright light reled on these unacceptable practices and to hold those responsible Accountable the message is crystal clear no regulator and no bank is above the principles of fairness and Market access speaking of shining a light I was so glad to see

that just a couple of hours ago the FDIC under President Trump's leadership released released a fresh set of neverbe seen supervisory documents which further proed that choke point 2.0 was Real I will be going through the documents in Greater detail but rest assured for those in this room and those watching at home they paint a disgusting and disheartening picture of abuse as acting chair Hill characterized them these and other actions sent the message to banks that it would be extraordinarily difficult if not impossible to move forward with crypto related activities I commend the new FDIC

Leadership for its commitment to transparency but it is a shame that it took an election an election for the agency to begin following the laws of our country thank you I look forward to hearing from our Witnesses and working with colleagues on both sides of the aisle to stop de Banking and protect every American's right to participate fully in the economy ranking member Warren thank you Mr chairman and thank you for Holding today's hearing on De banking it's a real problem and it's something that I hope we can work on together people need access to

a banking account in order to thrive in today's economy and the same goes for businesses without a banking account you just really can't get along de banking happens when a bank shuts down a customer's bank account because they think that that account poses a financial a legal or a reputational risk to the bank once the Bank shuts someone out the bank may share that information with companies that get paid to maintain a do not Bank list with the result that the customer is blacklisted everywhere for me this is straightforward it doesn't matter who you voted

for what you believe in or the origin of your last name people shouldn't be arbitrarily denied access to their Banks locked out of their accounts or stripped of their banking privileges to help identify what's going On my staff reviewed the Consumer Financial Protection bureau's complaint database looking for cases where consumers rep reported that they were unable to open accounts or that their accounts were wrongly closed classic Deb banking Mr chairman we put together a supplemental memo on this data and I'd like to make that part of the committee record objection my staff identified 11,955 complaints

and that is only the people who took the time to file Complaints and only during the past three years all of these complaints Rec uh reported common things no warning no explanation and no chance to dispute or appeal these people described how one day all of a sudden they lost their place in the banking system we know from the Consumer complaint hotline that millions of Americans of all political Stripes have had the same experience tens of millions of customers have been blacklisted by The banking industry because they overdrafted their account a few times formerly incarcerated

Americans have been debanked because of their criminal history some people have even been debanked merely for having the same name as someone who has a criminal history uh Muslim Americans and Armenian Americans have faced debank on account of their last names nonprofits and Charities operating internationally have been debanked through no fault of their own Lawful cannabis businesses have been unable to open accounts and employees of those businesses have been debanked this shouldn't be happening and we need to figure out why and who is responsible my staff did some more work here as well they found

that just four big Banks Bank of America JP Morgan Wells Fargo and City Bank accounted for half of all the complaints filed at the cfpb Donald Trump was on to a real problem when he criticized Bank of America for its debank practices Banks may be taking shortcuts when it comes to assessing risks rather than investing the time and the resources to identify true criminal risks and shutting down those accounts big banks are relying on blackbox algorithms and middlemen companies and shutting down accounts without doing careful due diligence we can prevent these abuses I know that

the Consumer Financial Protection Bureau is a favorite Whipping Boy of the Republicans on this committee but the cfbb is the main agency in the our government that is actively working to stop unfair debank let me say that again the cfbb is the one agency that is actively working to stop unfair Deb banking right now the agency has five different rules either in place or in progress that would help prevent debank by addressing some of the root causes from overdraft fee practices to religious discrimination and the cfpb is Working to hold Banks accountable when they close

law-abiding citizens and businesses accounts for no good reason I sent a letter to President Trump today that walks through the cfpb's work and I'd like to make that re that part of the committee record OB I said that the cfpb is the one agency fighting back against Deb banking but that may be at risk earlier this week treasury secretary and acting cfpb director Scott Bess Halted all cfpb rulle making enforcement investigations and litigation against financial institutions that are breaking the law including the banks that are wrongfully debank their customers the free secretary bessent put on

the cfpb means more Americans across this country will be unfairly debanked and they will lose the one agent genc that is working to help them there is additional work to be done by the treasury Department the Federal Reserve the FDIC and other Regulators to issue clear anti-money laundering rules and guidance for banks to follow which would reduce the incentive to use Deb banking as a form of risk management Mr chairman I'll say again I appreciate you're holding this hearing debank is a real problem I'm eager to work with you you and president Trump to support

the cfpb's efforts to make sure that everyone is treated fairly and that we put an end to this Deb banking thank you ma'am I now Recognize our first witness Mr Nathan mccaulay CEO and co-founder of Anchorage digital you may begin your testimony thank you for being here thank you chairman ranking member and distinguished members of this committee for having me as a witness today on the important issue of debing my name is Nath MCC I'm the CEO and co-founder of Anchorage digital an Institutional crypto platform that is home to the own the Nation's only federally

chartered crypto bank I grew up in economy Indiana population of about 150 though I came from what many call fly over country and one of my first jobs was grilling burgers and McDonald's I had Big Dreams I want to be a computer engineer and entrepreneur early in my career I worked on cryptography as a security engineer in 2017 after being asked for years by friends to help them manage the private keys to their crypto wallets my Co-founder and I decided to start a company to offer a safe way for institutions to C custody their crypto

at scale that company is Anchorage digital with about 400 employees around the globe including 282 employees across 30 different 37 different US states and offices in South Dakota New York Portugal and Singapore while we started out as a state Trust Company I believe that our Company clients and the industry would benefit from the highest regulatory standards so we Cho chose to pursue a National Bank Charter under the OCC that would allow us to offer crypto custody staking settlement and other services to our institutional clients we received the charter in January of 2021 the first and

still only of its kind today we are privileged to get Safeguard billions of dollars worth of crypto for institutions ranging from crypto protocols to asset Managers to Sovereign wealth funds I'm here today to talk about something I could not have imagined when I started this company not in America that is the story of how we were V virtually shut out of the federal banking system despite being a federal bank ourselves since January of 2021 we held a corporate bank account with a partner bank which held client fees from custody and other services along with General

Corporate funds for day-to-day expenses like payroll and administrative expenses one day in June of 2023 we received an urgent email from the bank saying they need to speak with us that day on the call they told us they were closing our account in 30 days because they were not comfortable with our crypto clients and their transactions they refused to provide any further explanation or allow us to speak with a risk management team needless to say I was shocked we had had A positive relationship with the bank for nearly two and a half years not once

had they raised any issues with our account in fact at the time we were told our account would be closed we were in active talks to expand our relationship into new Partnerships separately following the closure of the banks where we held our capital reserve and Fiat sub custody accounts for our clients we had extreme difficulty finding new bank Partners we Spoke to about 40 Banks across the country and were rejected by all of them many telling us that they had a blanket policy against serving crypto clients so why did this happen I believe that Regulators

pressured Banks to shut an entire industry out of the federal banking system why do I think this two things a series of crypto regulatory actions spanning from 2021 to 2023 and my own lived experience first in my written Testimony I go into great detail about the long list of anti-crypto regulatory actions that led to mass debank of our industry but in my view the nail in the coffin was the joint statement from the FED FDIC and OCC in January of 2023 warning National Banks from serving crypto clients or engaging in crypto activities of their own

second I want to talk about my lived experience outside of what happened to our company I'm an investor in four crypto companies that Struggled to obtain and keep their bank accounts during this time some of them actually had to shut down further I have at least two employees that have debanked because of what they believe is ass Associated the crypto industry including one as recently of December of last year finally I have spoken to dozens of crypto leaders that have been debanked personally or had their crypto companies debanked While Anchorage digital was eventually able to

find Banks willing to partner with us the impact of nearly being shut out of the banking system was devastating it was extremely disruptive to our business and our clients and contributed to the very difficult decision to lay off 70 employees here in the United States about 20% of our staff to this day our clients lack the ability to send wire transfers to third parties a basic banking service we Previously had access to furthermore it abruptly ended opportunities to provide sub custody to other National Banks who are actively exploring Partnerships with us the irony of having

trouble accessing the federal banking system despite the fact that we ourselves are a federally Chartered Bank cannot be overstated congress's right to investigate what happened to us and our peers across the industry to protect and promote fair and open access to bank Services for all L abiding citizens and companies thank you for the opportunity to appear today and I look forward to answer your questions thank you sir Mr Steven Ganon partner at Davis Wright Tain you are now recognized good morning chairman Scott I thank you and the other members of the committee hit your hit

your button thank you Mr chairman yes sir and good morning and I thank you and the other members of the committee for the Opportunity to address you on the matter of the underlying policies processes and Norms that have allowed Deb banking to continue I'm a partner at the law firm of Davis wri termain and for 20 years prior to that I was a senior legal executive at several large Banks and bank-owned broker dealers de banking has come to my attention both in my in-house roles and in private practice as a lawyer who represents both Banks

and digital asset firms de banking of course Is not new this committee is familiar with the unfortunate history of operation chokepoint 1.0 in which former FDIC chair Bill Isaac described it as one of the most dangerous programs he had experienced in his 45 years of service in the government and the private sector the committee also has seen examples of Deb banking both this morning and in the record one more may illustrate the challenge posed directly to banks by virtually Unbound Supervisory discretion a small bank had been making tax refund anticipation loans those loans were legal

then and they're legal now the FDIC however instructed it to stop that business the bank refused and according to a report by the fdic's oig the bank and its tax preparers then became the subject of a special horizontal review staffed by 400 FDIC examiners I'll now address the building blocks used by Regulators to engage in Debank activity they depend on Broad vague and malleable terms always subject to reinterpretation by supervisors you could call it strategic ambig it for example reputation risk does not relate to the financial condition of a bank but rather on how an

examiner perceives the reputation of the bank and because reputation risk can impact any aspect of Bank management and Bank risk it is literally everywhere and subject to unlimited discretionary Judgment of Bank Examiners and in the same vein are terms such as safety and soundness and risk of future harm finally is the term management the m element of the well-known camels rating system unfortunately management has come to mean almost anything the supervisors find to be unacceptable regardless of whether there is an impact on the financial health of the bank and a poor management rating can have

disastrous consequences for A bank's business going Forward compounding the problem this kind of arbitrary discretion is not subject to meaningful challenge supervisory examinations are shrouded in secrecy and are not available for any effective review by the very Banks whose information is being analyzed Bank Regulators contend that everything done within the envelope of an examination is confidential supervisory information and that CSI is the property of the regulator itself even though that Argument rests on weak legal and constitutional grounds the digital asset industry has felt this impact with great intensity for example in 2021 and 2022 using

interpretive letters each banking agency promulgated an unusual prior restraint requirement called a supervisory non-objection before any Bank could engage in permissible crypto activities notably these letters met the definition of a rule under the Congressional review act but they were never submitted to this body for review under that law and no bank has dared to disobey their mandates this exercise of nearly Limitless regulatory discretion suffers from a fundamental problem it distorts the relationship between a regulatory agency and Congress under article one the entirety of an agency's power is delegated to it by congress not some of

it all of it if an agency wishes to make A legal business illegal it must ask Congress for that power debank of legal businesses ignores that fundamental concept and also contravenes this administration's recent executive order stating that regulatory agencies are to quote protect and promote Fair access to banking services the good news is that there are a series of remedies that can be implemented some starting even today as we discuss in our written statement but While those remedies look forward it cannot be stated strongly enough that the challenge remains to provide full and complete remedies

for those already harmed by banking commentators wrote after operation choke point uh 1.0 that we have to demand that accountability in those remedies or risk setting a terrible precedent that ideology can control our regulatory agenda at the expense of Banks and small businesses alike but despite the best efforts of Congress the spirit of operation choke point 1.0 did not end in 2017 it simply morphed into operation chokepoint 2.0 Mr chairman history teaches us that if this time there is no real accountability and no genuine remedies for the actual damage done one thing is certain there

will be an operation choke point 3.0 thank you thank you Mr Canon we'll turn to Mr Michael ring president CEO and co-founder of old Gloria Bank you are now recognized thank you thank you Chairman Scott ranking member Warren other members thank you for having me and allowing me to share the story of Old Glory bank which launched from beautiful Elmore City Oklahoma in April of 2023 and became a market solution to De Banking and chairman Scott we are Community Bank that does do character loans and we would love to have your business Nathan we have

a program on being the on andof ramp for crypto and we would love your Business do you have one for law Firs you bet we got I'm honored to speak on behalf of a more than 50,000 customers across all 50 states our 88 passionate employees and our pro-america co-founders including some of them here today we' got radio and TV host Larry Elder with us today future governor of California I hope got the 27th Governor of Oklahoma and former two-term member of Congress with us Mary Fallon Christensen got former one of our other Co-founders former co-president

of Fox News and the White House Deputy Chief of Staff of communications for president Trump's first term Bill shine with us of course we have our brilliant and beautiful Chief legal officer who is also my wife of 20 years and Marie ring and then two of our co-founders who couldn not be here today are former secretary HUD Dr Carson and America's favorite Patriot country music icon John rich and hopefully he's tweeting right Now talking about this want to also thank Mr Wade Christensen who's with us today from the great state of Oklahoma whose family previously

owned the bank we purchased to launch Old Glory bank and who are now co-owners at the bank so as we've heard today lots of De banking going on and there's two types of way I Define it there's the regulatory type of Deb banking which other folks much smarter than I am will talk about in this Operation choke point .0 2.0 and there's probably some two and a half in there somewhere and then there's participant debank which is where the big Banks debank you so other folks will talk about the regulatory but I just want to

remind folks it cannot be a coincidence that an April of 2022 both the FDIC put out fil 1622 and the SEC put out sab1 121 there was clearly Co those are big organizations there was clearly working Together to choke out not only banks acting as a custodian for other people's customers crypto but to stop the de the the demand deposit Services of a bank and if a crypto company can't provide that on andof ramp you choke out the business and that is what has happened in America but the more interesting part of it is the

participant Deb Banking and that is the voluntary effort by the big Banks to debank Americans who disagreed With them on the issues we all know whether it's co the vaccines or who support supported Donald Trump including his wife who was debanked as we know and other conservative causes and I don't know the first lady but I can assure you she is not a money loer in risk and she was debanked the founders of Old Glory Banks saw what many of us saw but instead of sitting around and complaining about it we all got together and

created Old Glory Bank as a market Response we purchased a one branch Bank in beautiful Elmore City Oklahoma on November 30th 2022 and just 5 months later working hard we launched the best digital First Banking service in America in less than two years we grew from 10 million in deposits to now over 170 million in deposits We Grew From 300 customers in Elmore City to now more than 50,000 customers across all 50 states we serve over 2,000 small Businesses we have respectfully better products than the mega Mega Banks but our service is in Durant Oklahoma

not offshore our customers love us and we love our customers as part of our Market solution in less than two years we had to do a 360 degree approach we had to do our own version of cancel proof PayPal called Old Glory pay we had to launch a cancel proof version of GoFundMe called Old Glory Alliance we launched Old Glory cash in so our Customers can walk into to one of 88 thousand locations across America and deposit cash you always talk about the friction point of banking online how do you deposit cash we solve that

with Old Glory cash in we are serving Middle America and the one I'm most proud of is Old Glory protect we have a free $100,000 line of duty death benefit for our protectors God forbid they're killed in the line of duty we John rich and I show up at your house and give you $100,000 if you bank at Old Glory bank and the protectors are big group law enforcement military firefighters including volunteer firefighters and importantly US border patrol agents we all know de banking is wrong but I believe the simple solution is a market solution

not regulatory with all respect we've got to keep make it easier for banks to start and run I'll close with this and the last two years 229 Banks closed only or remerged emerged only eight were started we've lost 73% of our banks in the last 40 years it is not sustainable we have got to make it easier to start and run Banks thank you thank you sir next we'll hear from Mr Aaron Klein senior fellow at Brookings institution you are now recognized thank you chairman Scott ranking member Warren members of the committee thank you for

the opportunity to testify on the pernicious consequences of debank in America all of the views I offer here today my own 10% of American households are currently unbanked or were unbanked at some point within the last year not having a bank account at significant costs makes people less healthy and makes it impossible to fully participate in America's increasingly digital economy people are debanked because the cost of basic banking is too high it there are unpredictable fees Banks don't offer the services they want there's a Lack of trust in Banks concerns about private and problems opening

an account due to identification or bad credit histories checking accounts are free for those who always have money while those living paycheck to paycheck pay a myriad of fees that can easily reach over $500 a year making basic banking unaffordable my written testimony illustrates how de banking harms consumers and businesses and enumerates ideas for reform I want to highlight five proposals to combat de Banking first require all banks to offer and Credit Unions to offer offer bankon style accounts bankon accounts are affordable low fee non- overdraft accounts that are wildly popular among consumers and are

considered a best practice by the American Bankers Association why should any federally insured Banker Credit Union not be required to offer a best practice account two reduce penalties and surprise fees that debank the Financially vulnerable most of America's largest banks and many small Banks and Credit Unions voluntarily reform their overdraft practice according to my estimate that will return $5 billion a year into the pockets of people living on the financial Edge but many did not the cfpb's overdraft regulation recognizes the economic fact that overdraft is credit and treats it accordingly that rule should be allowed

to go forward However the rule aired in not um in exempting Banks and Credit Unions under 10 billion which includes many institutions whose overdraft practices ought to raise serious conf concerns I'll mention One Armed Forces Bank they generate $92 of overdraft per customer compared to just over $1 of overdraft per customer from Bank of America how is that bank or any bank that generates a majority or totality of its profit year after year on overdraft operating in a Safe and sound practice Regulators need to treat it as such three to we need to improve the

design of the financial system to better serve working people how can Amazon get anything to almost anyone's door faster than it takes two Banks to transfer an electronic funds if America had instituted real-time payments when England did people would have saved over a hundred billion dollar and overdraft fees check cashing fees and payday loan fees alone You know 70% of people go to a Check Casher have a bank account why are they at the Check Casher because the Check Casher gives them cash immediately the does it the Federal Reserve has been required by law to

lower the amount of time a bank can sit on your check and they have ignored the law for 37 years even when the past cfpb director called for modernization legislation introduced by Senator Warren and Senator van Holland the payments Modernization act would hardwire this into law and fix this problem and would be the most effective thing I can think to combat debank by improving the quality of services Banks offer to people living on the edge four reform AML when Congress established the $10,000 uh CTR limit in 1972 you could walk in and buy a fully

loaded brand new Cadillac in cash and not trigger that report today Mr Scott I don't know if your used car would trigger a CTR I'm Not sure it would trigger anything but thank you very much if you adjust that $10,000 limit for inflation you'd be over $75,000 today why is Cong Congress why are PE what's the government doing looking at things at such a different level in addition Banks file 2.5 million suspicious activity reports today an increase of 10 times more than they did 20 years ago Banks spend a lot of money making SARS and

they pass that along to Consumers and small businesses and the result in economic terms are low profit customers get pushed out high-profit customers keep their bank account look at Japanese baseball star Shani Otani he got to keep his bank account despite somebody fraudulently impersonating him and wiring $17 million into the account of a bookie that person kept their account but plenty of low-income people as Senator Warren pointed out 11,955 people lost their account it has To do with the economics here um States need to there's a cannabis banking issue that deals with SARS as well

where I hope the safe Banking Act which was a good step forward but needs to go further lastly five we need to reform these not Bank list systems like check x uh where you get kicked out for being just poor not for fraud the bank on program has helped solve that and that ought to be done across the board I thank you all for holding this important Hearing and I look forward to answering your questions thank you Mr Clin U I'll start the questions and then we'll head to the ranking member we'll go back and

forth Mr Ring the Biden Administration took several actions that likely contributed to the de banking of crypto firms in January 2023 the credential Regulators issued a joint statement urging Banks to limit their exposure to cryptocurrency activities and Associated risks the FDI disclosed that the existence of pause letters sent to financial firms between March of 22 and may of 23 asking them to pause plann or ongoing crypto related activities and provide additional information as I said earlier we receive Reed validation today with chair Hills actions the SEC issued staff accounting bulletin 121 which effectively prevented Banks

from holding digital Assets in custody these actions collectively helped create an Environment or Banks became reluctant to work with crypto firms fearing regulatory backlash you've worked to create a banking environment focused on being a home for so many Americans and businesses who have been debanked I'm hoping you can share what your interactions have been like with our Federal Banking Regulators well I like to say that I'm standing between The Regulators in America and I'm the only Bank executive Who is not intimidated by The Regulators and I definitely fly too close to the Sun but you've

got to to protect America and what was really disappointing about fil 1622 that you referenced chairman Scott is that on its face if you read it it wasn't entirely reasonal about safety and soundness unfortunately the examiners took that to to stop Banks from even being the on andof ramp so if you're a legal crypto business it's one thing that there could Be some challenges holding a customer's tokens and keys but the think you could not be that legal business's bank account was the real problem with fil 1622 and thank goodness it's been exposed Sab 121

I don't know how that passed the laugh test the think that if you're holding a customer's crypto that you've got to book that as a liability and then put Capital against it is ridiculous and thankfully that's been resented thank you for that answer Mr Mcau Anchorage digital has the honor of being the only OCC related federally chartered crypto Bank in the United States this stamp of approval from the OCC should provide your company with legitimacy and access to traditional banking services however as you detailed in your testimony Anchorage is still struggled to access the traditional

banking system despite your bank this is unacceptable could you Elaborate on anchorages the banking experience and the impact on your business operations including making payroll for your employees and going beyond the 70 20% layoffs devastating for any business our employees are very much like our families when you're in business and I'd love for you to share in addition other issues and challenges you face because they don't want you to be a bank uh Senator Scott thank you for the Question I think the the first effect that was so pernicious about the de banking that has

gone on for the last several years has been the kind of betrayal of the bargain that is the American experiment uh we were taught growing up that we would have uh a fair legal system and a fair justice system that we could face our accusers uh and so I would say the the the most devastating part of this to the crypto industry has been that betrayal of trust And uh I think that as we look forward to the the new Administration coming in and thinking about the path forward here uh that is probably the most

important thing to reestablish is this industry's trust in the reliability of the American banking system and the legal and justice system here I I would suggest it goes to the entire government anytime you see the weaponization of government against you or your industry it makes you not just cautious but leery of the entire System itself I wonder if you would uh because of your day-to-day interaction with so many crypto firms how widespread is debank in the crypto space so a an anecdote I could share as I was I was speaking at a a Meetup of

about a 100 crypto Founders within San Francisco and just as a uh show of hands I said hey who here has had trouble getting a bank account or has had uh debank issues all the hands in the room went up and so to say this is uh pervasive is uh an Understatement it's been across the entire industry everybody has dealt with this in fact to it became so commonplace to us that it became background noise and we started thinking about it it was just assumed that if you were a crypto company you would have trouble

getting banking services unbelievable ranking member Warren uh thank you Mr chairman so debank is a real problem and we need to work across the aisle to solve it I've got a stack of stories in by Consumers and organizations that were debanked I'd like to submit them for the record thank you Mr chairman these stories are from Muslim Americans from Cannabis businesses from formerly incarcerated individuals all of whom lost their bank accounts for no apparent reason so I want to talk about what kind of recourse consumers have or don't have when they are debanked Mr MCCA

you testify that your company lost its bank account when you tried to open a new one Dozens of Banks including some of the biggest banks in the country turned you down which of the big Banks refused to offer you an account uh Senator I don't think it's productive to name individual Banks I believe the banks were the victims here uh okay I'm not I just want to get it into the record because we have recourse um did you get an opportunity to appeal the decision with any of those Banks uh no Senator there was no

room for Discussion with the banks so no appeals at all you know that's unfortunate the the cfpb has accepted 11,955 complaints from consumers and organizations that were unable to open accounts or their accounts were wrongly closed just in the last three years do you agree that it's useful to have a database for this information so that we can identify Trends both the types of individuals or businesses that are targeted and also the banks where this Is happening uh Senator more data and more transparency will help okay good you know um I don't think for a

second that you should be locked out of our banking system in many cases it is wrong for banks to close accounts and threaten your ability to make payroll or pay rent on time without even providing an explanation so long as you are following the law so Mr mcau do you agree that people who are illegitimately debanked Deserve some rules to protect them and an appeals process if they lose their accounts uh yes Senator uh something should be done to make sure that Regulators do not do this again okay and if banks are adopting policies that

routinely debank People based on their beliefs or other illegitimate reasons that's wrong it needs to be stopped Mr mccaulay should consumers be protected from being debanked based on their political or religious Beliefs uh yes Senator many individuals within the crypto industry were debanked and I wish wish uh agencies had helped them and I presume you would carry that over to people who are debanked for other reasons as well of course because of their beliefs you know the cfpb has been on the front lines of combating debank for years now in 2022 they added de banking

to the list of illegal practices that bank examiner should be on the lookout for last year they wrote Rules to crack down on debank by payment apps and the third-party data aggregators that the banks use to decide who to kick out of the financial system just last month they proposed a rule to stop companies like PayPal that had considered finding users for certain types of speech on their platform Mr kleene how would the cfpb's uh rules help put a stop to unfair debank well Sor the the cfpb is really on the Forefront of looking at

for consumers Making sure consumers have access to high quality and fair banking practices as opposed to the bank Regulators who are too often focused on the bank I can think of five rules that the bureau has their contract rule their udap or unfair discriminatory uh practices rule their larger participant rule which would give them authority over places like venmo and PayPal which you just described their data broker rule which includes uh credit reporting agencies like this Check X system that maintained deao do not Bank list where again there's no economics to require those things to

be accurate it's simply uh uh um a limited appeal process and their overdraft rule because when you ask people who've lost their bank account or out of the banking system why don't you have a bank account the number one reason is it's too expensive and their overdraft fees which some estimates were up to $30 billion a year or more are part of the large Reason people leave so those five rules a bureau put out would all combat Deb Bing in various ways uh thank you the cfpb is ready for this fight and every day that

the cfpb is locked out of doing its job people are getting debanked uh if the president is serious about stopping Deb banking then he needs a strong cfpb as his partner to get this done thank you Mr chairman Senator reals thank you Mr chairman well I think as many of you can see in this room the Different directions that we're talking about out here in terms of the direction that we need to go some of us are interested in having the regulatory oversight actually be identified as the problem here versus suggesting that the big bad

banks are suddenly doing this all on their own let's walk our way through this Mr mcau it's good to see you again I'm glad that you decided that South Dakota was the right home base for you when you started the state chartered Uh uh uh trust facilities that you've got um you shared with us the challenge that you had in getting Banks first of all uh you are the first and only federally chartered crypto Bank correct yes that's correct and uh Anchorage digital is both a qualified custodian and has a conditional OCC Bank Charter what's

the nature of the accounts that at the other Banks checking accounts basic uh checking accounts and uh holding our Capital reserves uh and then Further we as a condition Charter hold cash for our clients at partner Banks so any of that illegal absolutely not so you ever overdraft no so in other words it's not a reason it's not a case of a business reason why anybody would want to not do business with you other than the fact that you were a crypto gener or you you would hold crypto in trust for other people and that

was a no no uh that's right and to put a very a finer point on it the bank that debanked us Was actively trying to work with us more but for some reason there appears to be a point at which they said we can't do this with you anymore was it because they didn't want to bank with you the answer to that is is no that wasn't the case what was the case what was it they wanted to bank with us and many of the other banks that we reached out to after that bank account

was closed also wanted to work with us uh this was consistent across the board that Banks did want to Work with us were not discriminating against us but they were worried about regulatory risk so you weren't doing an illegal activity like cannabis which is federally illegal to do and you weren't overdrafting you were simply part of a legal industry that Banks were told by Regulators would be a problem for the bank is that correct that's right I'm um I'm uh a bit of a square I like rules I like following rules and so we've always

Followed all the rules and regulations Mr Gan thank you sir Mr Ganon you represented financial institutions are you finding that these Banks simply don't want to do business with people or is it a matter of for people that will follow the law that aren't violating the law and that are not business risks of Simply overdrafting their accounts these Banks want to look for business but because of a regulatory environment that they have Been in they have been forced to decide whether they want to do business with certain types of Industries whether they were gun manufacturers

people that sold guns people that did the terrible thing of being in the business of crypto activity and so forth were now suddenly being identified because of the type of business that they had which was a legal business by Regulators who are coming down hard on what can a regulator do to A bank that doesn't want to uh comply with their demand whether it be written or implied Senator uh The Regulators can do quite a bit uh the banks are not making this up they like to have customers like all businesses like to have customers

um Regulators have a lot of tools subject almost to their complete discretion and supervisory in nature supervisory tools the Auditors walk in and say guess what you got a problem a camel rating might Change correct correct like what what happens if a camel rating changes for a bank let's say it goes from a two to a three what happens do they get bonded that they don't that's a very very bad result uh Senator what happens is you're pretty much locked out of any ability to expand um your what you pay for your FDIC insurance goes

up uh and there are a lot of other strictures on what you can do uh as you go forward and attempt to grow your business so that is that Really is the big hammer that The Regulators have and management rating can be almost everything one of the anything one of the things that's remarkable is if you look at the fed's supervisory report from November of 2024 you will find out that they say 2third of the large banks in the United States are not well-managed those same Banks and we have a chart on this in our

written statement those same banks have record levels of capital and liquidity And I can tell you senator they also invest enormous amounts in technology in community reinvestment Etc perhaps higher than any time in history yet somehow two-thirds of them are not well managed thank you that doesn't make a lot of sense thank you Mr chairman I just really appreciate you're taking the time to have this hearing and I think the focus of what's happening to Banks who want to do business with leg legitimate businesses and the struggle They've had with a supervisory approach for the

last couple of years which has put pressure on them for what they consider to be inappropriate types of legal businesses and this has got to stop thank you Mr thank for your questions they were Illuminating Senator Reid thank you very much Mr chairman and thank you all gentlemen for your testimony uh one of the uh factors involved in this discussion is reputational risk because That's often the justification for the actions and rules of the Federal Banking regulators and miss last year we had a uh very positive discussion about the safe Banking Act and I work

with my colleagues to come up with a compromise that would still allow reputational risk to be effective but to put up some guard rails with regard to its application and Mr K uh can you uh elaborate on the importance of maintaining reputational has a factor in evaluation and also the God rills that might be in placed ye yes Senator I I think the compromise that was worked out in the safe Banking Act on reputational risk effectively address that problem look at the end of the day all banks are a reputation-based business trust is the Cornerstone

of all banks consumers trust that the banks have their money and when a bank loses trust it has the possibility to have a run on it so the need to consider reputational risk is real and it is Important it is possible that it is abused and you need to have guard rails on it but it is absolutely a certain and important part of Bank regulation and supervision thank you uh U Mr Ring I know you understand this very well because in your offering circular back in uh 2024 you've specifically pointed out the dangers of uh

moneya laundering and terrorist financing and one of the aspects of crypto it's a rather new phenomenon is that it seems to be a a Very often used vehicle for financing of places like North Korea financing of uh illicit activities uh does that put more pressure on you to be more stringent and regulate and also The Regulators to be more careful watching what you do I believe the bank secrecy act which is what you're talking about for AML and by the way for folks not in this room the Bank secrecy act has nothing to do with

the secrets and has nothing to do with your customer data it is strictly About money laundering and those and those rules what you're talking about I am I am not in favor of the amount of Delegation law enforcement has done on banks with respect to these type of issues they're real issues but Banks should not be on the front lines because the what happens is that that that is the Trojan Horse for banks to do whatever they want oh it's AML BSA issues or The Regulators to come in and say you can't do crypto because

of that If you're checking out it at a grocery store does the cashier and the bagger have to let the police know you bought some chemicals of of course not and so I believe it's the Trojan Horse it should be a small component of the issues you're worried about with crypto well I again I I think the bank Regulators are trying to react to a relatively new phenomena crypto is about a decade uh shouldn't take 10 years respectfully no but uh it's a situation In which looking from my perspective of National Security on the AL

Services committee North Korea makes a lot of money through crypto operations and um a lot of these as you point out in your officing circle is terrorist groups use it too so I think there there has to be a heightened awareness both in the industry and also within the regulators with respect to crypto and that's a a factor that's not current that's not as prominent in other banking institutions That don't deal with crypto I believe every bank has the same concern about AML and terrorist activities and I don't believe that crypto is is the overwhelming

factor that that the bank secrecy act really which is preventing is going to solve what you want respectfully Mr Klein you uh have a comment yeah yeah I wish every Bank felt the same way I I think one of the problems that we have in our anti-money laundering system is we've Created an economic structure where the costs are very high and the banks respond by saying if you're a low profit customer we don't want you because of the AML cost but if you're a high-profit customer we'll just pay the AML fine I mean I can't

understand how a foreign National was wiring $17 million in $100,000 increments and I encourage you all to listen to the read the doj's filing and listen to the to to the audio that's been released of his interpreter Saying I'm paying $200,000 to this illegal bookies bank account for a person for a car loan uh and maybe there'll be more and that bank account was not closed so I think that there's a a very different world going on between very wealthy people very wealthy businesses and Banks who see AML as a fine and a cost some

not most not most but what I'm saying here is that we have an AML system where the econ omics of it are not in line with the with the Objectives of it which are to use this information to catch criminals we're reporting too much information that's not useful but there's too much criminal activity where banks are being led off the hook too easily just to pay a fine thank you thank you Senator Tillis thank you Mr chairman thank you for all all you for being here today I Mr chair when you were opening up I

was thinking about uh why I knew what a 90-day note was when I was 14 years old because it kind Of went like this my dad did construction work uh he he had a relationship with a couple of Agents insurance agents and when they had damage that was not of a major scale that was my dad's work and I was a 14-year-old helper that would be in the bank parking lot when my dad would go into a banker in Nashville Tennessee that he had a relationship with and got a 90day note and that's what paid

that's what paid the bills for the project and Ultimately put food on our table we have all been overregulation those personal relationships out of business but my dad today probably couldn't get that 90-day note because he'd have some supervisor breathing down the bank's back about how could you possibly give this man money that's living paycheck to paycheck and trying to feed six kids uh we are over regulating in a way that is debank people de facto now Senator Warren mentioned uh well people have been Debanked because they bounced a check a couple of times that's

called a uh that's called managing a risk I'm not saying that they should not find a way to provide that person with help but them having a consistent pattern of of bouncing checks is not help in the long term we need to figure out how to help them manage their finances not force Banks to carry an atrisk customer on their um in their portfolio now if we talk about and then we also Talked about and then we've got the Cannabis business well the last time I checked the Cannabis business is illegal at a federal level

I for one think we should reexamine that but we damn sure shouldn't do it by passing the bank secrecy act which makes it default legal before we've taken any firm position here that provides the industry with Clarity somebody wants to work on rules of the road and do that and Bank the industry in a in a cohesive sustainable Way that doesn't kind of skirt around the fact that it's still ilal at the federal level Count Me In happy to do it now I think we've got a lot of regul ler initiated de banking going on

with this concept of reputational risk Mr Ganon I think you got people going into the banks I don't know these gun people may not be you know these un unsavory people are you fill in the blank now I will tell so I want your I want your input on that but let me tell you what I've told Every G CEO that's been in my office and everyone has been and their and their counterparts in Europe I said if you act like a politician I'm going to treat you like a politician you provide banking services period

now if you have judged as a as a CEO if you have judged that you want to do a bank that only banks blind headed blue-eyed people and there's a market opportunity for that and a growth St strategy knock yourself out uh if you Can prove to the investors and the shareholders and your entity that it is in the best interest of your bank and your underlying strategy to grow fine but we have clearly seen reputational risk being overused by Bank supervisors Bank examiners saying well maybe you want to move out of there and it

changes depending upon who's in the white house I don't think that that's right in either case Banks should be able to figure out what they can do to derive Value and serve their customers can you give me some examples or your thoughts on whether not Mr Ganon you believe that a lot of a lot of these Deb banking is a direct result of regulators kind of doing a wink and a nod this is an unsavory segment to serve Senator I do think that and um and the reason is Regulators have taken the term reputation risk

and made it incredibly it's overly broad it's anything it's it's uh it it's almost the definition of Subjective it's it's not really tied or linked to anything that's objective and one of the things that I can tell you having sat in planning sessions for some fairly large Banks is it's impossible to plan against that when you don't know what the the terms are of what your regulator and supervisor wants you to do it's really difficult to come up with a plan the perverse consequence of all this stuff is it's costing Banks more money it's shutting

down more Market Opportunities and making it more difficult to continue to bank the people that just bounced a couple of checks because at some at some point you're affecting the business plan the underlying success of the business business and they have to close the aperture to the most profitable most sustainable part of business so I I just feel like we need to we need to I'm here to talk about the regulator initiated debank I'm not talking about other Behaviors where people lose financial services we need to have a hearing and a discussion about that uh

but I would like anything you can provide for the record on some use cases of uh debank that in your opinion was driven by a regulator interaction that would be very helpful I'm sorry I don't have more time thank thank you we we we'll do that Senator thank you Senator Warner thank you Mr chairman I want to pick up where my friend Senator Tillis was on this Question of reputational risk um I think it has been overused I've been trying to push the banks to use the discount window more often before we add additional tools

that's out there but the response is always well reputational risk I though do agree with Mr Klein that you know banking is a reputation-based business and if people start to lose confidence in that bank they're going to move Whatever the regulator does or doesn't do and that's why I got to ask rhetorically at least and perhaps to my colleagues you know the United States dollar and the United States government and the full faith and credit are all build up the reputation in the United States of America now if any of your institutions suddenly let somebody

into your payment System that had no background in banking that had no understanding of money flows that suddenly gets an ability without any screening to look at all of your customers personal banking information I believe that would cause reputational risk and that is exactly what is happening in the United States Treasury at this moment in time we don't know if the Doge crowd there is one person that maybe has a clearance The others we have no frecking idea but the ability and we don't know for sure whether this is a readon ability or read and

write which in past the legal Le means that person could potentially go in and alter code or manipulate payments I say to my Republican friends guys can't we agree that the risk of the United States is worth protecting in the idea that we've got people potentially manipulating our Payment system that we have no idea and we're going to sit silently by this isn't about efficiency this is about the kind of payment system we're going to have in our country if any financial institution like let unscreened individuals into their payment book or into the private banking

information about their customers Mr client I believe their Reputation would go straight to Hell uh a absolutely Senator I worked in the treasury Department for almost four years with the top secret clearance I was going nowhere near that and as you point out this is not about efficiency you if you wanted to make the Treasury System more efficient you would move it to a real-time payment Network should have been done years ago you wouldn't just sit there and take read access to look at every single payment the US Treasury Department does any bank that did

that to their customers would be in deep violation well it's also the fact that you know the payment system in the treasury that's not where determinations are made about whether something is illicit or illegal that is actually the subject matter expertise resides that the agency had that as oversight yeah I just say come on guys this is about the full faith and credit of the United States it is about our Reputation in the world you're getting the same calls that I'm getting they don't identify whether they're Democrats or Republicans but these programs that may or

may not be arbitrarily eliminated by somebody that we don't even know who they are efficiency sign me up turning over the payment system to people that we don't have any idea who they are or what their goal is or what their mission is where we can't even get A full answer where they simply have read capabilities or read and write this is an enormous difference in those extra couple words and I just feel Mr chairman this ought to be something that we as the Banking Committee that are looking at the treasury we ought to jointly

want that you know there's a 25y old there I've read about in news I don't I don't know the individual I don't have the Slightest idea if they got security clearances I will tell you this Mr Ganon I was going to ask you about something on on crypto that I'm not going to be able to get to I look forward to working with Senator Lumis on how we promote Innovation but don't overdue on the risk side and I think um um you know we can we can do much better than we've done so far but

I have to just tell you you know as somebody that was chair of the intelligence committee and now Vice Chair and take that role incredibly important the notion that somebody may be arbitrarily put out these payment flows for something that looks kind of funky but they don't have no any idea what it is we'll hurt our national security because candidly and this is not classified we fund things sometimes under a cover we put out this information and the bad guys find out about this People's lives are at risk and I implore you all is experts

I implore my colle colleagues this should not be a partisan issue let's get to the bottom of who these people are what kind of clearances they have and make sure that we don't put in further Jeopardy the risk and reputation of the United States government which I believe is under immediate an imminent attack from these unsanctioned individuals thank you Mr chairman thank you Mr Warner before I go To Senator Kennedy I do want to respond to your comment there uh Mark feder the just put this out importantly the ongoing review of Treasury System systems is

not resulting in the supervision or rejection suspension or rejection of any payment instructions submitted to treasury by other federal agencies across the government in particular the review at the physical services does not cause payments for obligations such as Social Security and Medicare to be delayed or rerouted to be clear the agency's responsibility is for making the payments always drives the payment process currently treasury staff members working with Tom Krauss a treasury employee will have Reed only access just Mr chairman do you know Mr chairman can I Mr chairman I just like to ask sure so

you you you are saying that is read only and not read and right that's what treasur just and and do you Know the identity of these individuals Mr Krauss is a known quantity and he's got security clearance the other individuals who've been reported in the Press do they have security sir I'll just say this and do you want that individual without security clearance to have access to all that information I was clarifying A comment you made number one number two I would simply say that under the Biden Administration we had no clue who was doing

what most of the time Um Mr Kennedy um Senator Warner is a reasonable man everybody on this committee knows that and he's a good man um and I understand he's interested in process and I'm not saying that process isn't important but if the United States of America has been taking taxpayer Money and using it to produce a transgender Opera in Columbia then I want to know about it and I'm glad to know about it and it seems to me that that's the main issue with respect to all of this and I look forward to talking

further with my friend Mr Warner about that I mean for four years under President Biden as was his right the topic of discussion in Washington was who needs to pay more in Taxes who needs to pay more in tax taxes that's no longer the main question the main question is now as it should be in my judgment what the hell happened to all the money and we're going to find out now um I need to get back to the subject uh with the exception of Mr kleene who's testimony I enjoy it I understand he his

position he wants to let the cfpb Run America's Banks and I appreciate that Perspective but Mr Klein it's not going to happen in your natural lifetime or M now let me turn to the other gentlemen What I Hear Mr mccauly Mr ring and Mr Ganon saying is that some of America's banks have been discriminating de banking customers because of their religious beliefs because they support the Second Amendment and or because they um uh they hate fossil Fuels um I have to I don't want to go with all three of you run out of time Mr

ring is that what you're saying yes sir which banks well I think it's been publicly reported that Bank of America has certainly picked and choose winners who else I think Chase Bank has who else I think City Bank has who else I think uh Key Bank has who else I'm going to probably run out of names pretty soon but I think the mega banks are Old Glory Bank is not of course we love the Second Amendment and fossil fuels we need to get those banks in here Mr chairman we need to get all those CEOs

in here I would agree now why you you I appreciate your cander um wh why do you think are banks doing this because they're scared of The Regulators are they doing this because the people running the banks um are Prosecuting their political Beliefs I mean I mean when a bank when a bank holds a seminar taking up valuable employee time to discuss whether a man can breastfeed or are they doing that because Regulators are leaning on them or are they doing that because the CEO really think that is that's subject to debate I think it's

definitely the ladder and I think it's also midal management what do you mean the ladder It it is not The Regulators I do not believe the Regulators pushed the big Banks to debank conservative causes I I do not I think it was their internal Choice by these big Banks why why the same reason why big Tech pick and choose winners I think big Banks pick and choose winners that they care about and that and that's that's why we need a market solution because you can't regulate that type of behavior without having unintended consequences And now

every time you get a customer application you've got to fill out five forms as to why you picked did or did not pick that customer so you think that that's the management of these banks that that are just um U imposing their own politics on customers and ultimately ultimately to the detriment of Shero is that your testimony yes sir either of you two gentlemen in my last 10 seconds disagree with that I Strongly disagree uh Senator yes i' I've I've uh spent a lot of time with a number of banks who do you think it

is I believe it's The Regulators how about you sir it's definitely Regulators the all the big Banks wanted to work with crypto and were scared away from it by the regulatory apparatus all right I'm out of time thank you Mr chairman uh thank you Mr chairman thank all of you for your testimony Mr Ring you work hard to protect your customer Sensitive personal information do you not yes sir and you wouldn't just turn it over to anybody who walked into your bank would you no and Mr mcau I assume the same is true for you

yes so I do want to bring up this issue that Senator Warner raised because what we are witnessing right now in real time is Elon Musk going into the Department of Treasury and demanding access to highly sensitive personal information that could impact any American the highest ranking civil service at the Department of Treasury resigned before he became CL complicit in turning over this information so I know that chairman Scott had to leave but I want to underscore Senator Warner's point and I know that Senator Warren shares these views that this committee which has partial jurisdiction

over the department of the treasury we should have an urgent hearing on this this should be a top Priority I would hope all of our colleagues regardless of party would want to know what is happening to this incredibly sensitive information that's just been turned in turned over to somebody who happened to contribute over $250 million to president Trump's reelection efforts in my view it's a corrupt bargain and I think we should have a hearing urgently to address that matter a lot of people write write Banks But you know Elon Musk goes after the treasury Department

it's a Big Heist of personal information and in my view it's an abuse of power I appreciate Senator and by the way a lot of the statements that have been made regarding the use of some of these federal funds whether by Aid or other foreign aid programs had been patently false made in one some cases by the chief spokesperson over at the White House just been provenly proven false And they haven't been able to provide any information to substantiate those claims I appreciate Senator Warren's uh pointing out that cfpb has been on the front lines

of trying to protect people against debank so it is ironic that many people who want to make sure that we prevent de banking are trying to get rid of the cfpb Mr Klein I appreciate your statements uh regarding the issue of um Overdraft fees and and pointing out that for Americans who live payche paycheck to paycheck and we're talking about tens and tens of millions of Americans their lack of access to realtime payments is causing them to incur these huge additional fees I think you said your estimate is5 billion a year and it's also in

some cases resulting in getting them debanked is that correct absolutely Senator one of the ways you get put on this do not Bank List is that your account is closed say you withdraw your account in good standing and you close it but then the bank says oh for that last month of your account you didn't maintain a minimum amount so you owe $10 and they send the $10 to your old address but you closed your bank because you moved and you never got the mail well that $10 fee then becomes another $10 a month another

$10 and they write it off into collections and your data getss put on This do not Bank list because your bank account was closed in bad standing and that's exactly how that process works so you referenced legislation that Senator um Warren and I have introduced the payments modernization act can you talk about how that would address this very real problem a absolutely the expedited funds availability Act of 1987 requires the Federal Reserve to make payments move faster as technology allows the FED has done nothing in 37 years to update That regulation as a result Banks

sit on your money we can all agree in this committee and every American that Friday was January 31st if you were short on your rent on your other obligations you worked a second job you got paid that Friday and you deposited your check you took a picture of your check I I was on this committee when we pass a check 21 act that lets you deposit your check on your phone on Friday the bank can sit on your money and it did just became Available yesterday what happened between the 31st and the 4th a bunch

of bills got paid the result of that overdraft overdraft overdraft now your legislation would force the fed's hand even though the law says shall not may but shall the FED just ignores it your legislation would rewrite that law to mean that your money would have been available on the 1 when your debits came out and your overdrafts wouldn't have hit and it would save People people a tremendous amount of money the bank of England did this in 2008 if we did it then hundred billion do a year would have gone back to people from Check

Cashers payday lenders and overdraft fees is the best thing you could do to reduce income inequality without raising taxes or increasing government spending and I can't understand how Amazon can get anything to your door faster than two Banks can clear a check thank you thank You thank you Mr chair I would like to welcome some alabamians that are in the audience in particular uh Laura Kate Robertson who is a senior in high school and is an outstanding star and certainly proud to have her here today um also just want to say thank you for holding

this hearing Mr chairman it's clear um and it's been no secret that our financial Regulators have become increasingly politicized over the last four years we have heard our ranking Member talk about the number of complaints that have been made to the cfpb over the last three years and yet this committee um in the last two years led by obviously one of our Democratic counterparts has not held a hearing diving into this so thank you because this must stop this is the United States of America and this what's happening is completely and totally unacceptable um look

when you're prioritizing a social agenda or um a political one instead of Actually ensuring that people have an opportunity and access to the American dream um we we've got to call that for what it is and obviously our large institutions play a vital role Ro um in our country and our banking system but they need to stick to that banking not politics and so Mr Ring what you've testified here to today is incredibly alarming um and we need to get to the bottom of that I also just want to point out something that my colleagues

have to Hear me say all of the time and that is just how grateful I am for our community Banks and credit unions in Alabama that serve our local communities and give people access to the American dream and remember that that is actually what they're there for so thank you to them I I do want to get to the bottom and better understand what spurred this debank and why certain industries and conservative align groups have been targeted over others um and importantly How we can prevent this moving forward so I want to start by quickly

clarifying A few things for the record um the first Trump Administration finalized a fair access to banking rule focused specifically on addressing this issue um Mr Ganon what happened to that rule uh that rule was revoked on January 20th 2021 um tell me who revoked that uh the president of the United States that's the day he was sworn in that's correct and so the day he was sworn in he said We're not going to do this there were a number of rules that were roked that day that happened to be one of them um well

thank you Mr Ganon is the supervision of the reputational risk uh a directive from Congress or found anywhere in law well that's a little bit of a complex question it it certainly is found in in law in the sense that Congress has directed the banking agencies to conduct supervisory activities but the details About how that supervisory activity is conducted is almost entirely generated by The Regulators themselves and you mentioned earlier the subjective nature of that um does the reputational risk have any real connection to the material safety and soundness of a bank um almost on

no occasions that at least the literature has been able to come up with is there a connection between reputational risk and some of the basic elements of banking Capital liquidity Operations and so on it there there's there's a disconnect there and in fact the regulators and this is quite interesting at least to me The Regulators have defined stakeholders for reputational risk and one of those stakeholders is themselves so it's a little bit difficult to argue with right regulator when they say you've got reputational risk that's because you're because you're arguing with the stakeholder that owns

that reputational Risk tell me um you mentioned earlier in your testimony About Management rating and you said many times it has actually nothing to do with management can you can you dive into that a little bit more well I'll go back Senator what I just said if if you look at um how Banks uh really are resilient today how they have higher levels of capital today um how they have more liquidity than ever um how they have invested a very interesting um statistic in 2016 which is a baseline that that this data comes from um

which was a not an easy year for banks uh Mr trillo was still the the sort the vi kind of acting Vice chair for supervision of the FED um Banks spent let's say $100 on uh technology in terms of compliance last year Banks would have spent $160 for the same activity so banks have have poured money into technology into compliance Etc now are banks perfect no do things slide through yes they do but I don't think anybody can doubt the commitment to invest in these sorts of things and reputation risk doesn't have anything to do

with that thank you very much and my final few seconds Mr Ring just to just a level set here what are the real world impacts to a small legally operating business if they are denied access to our financial system because I know that you have seen that firsthand well if you can't make payments and if you can't bank then you Can't exist in America it is and it's happened in crypto it's happened in the Second Amendment space it's happen among conservative causes you can't exist without banking thank you for what you're doing thank you thank

you um I I'm sorry one of my colleagues had to leave um Senator Kennedy uh because I do I do need to address this and I so appreciate um my colleague Senator um Warner bringing this up you Know we can and we should be identifying uh waste Fraud and Abuse I I think we all agree about that and we can do it and we should be doing it as a congress but we should be doing it without giving a private unelected citizen access to the federal treasury payment system that contains personal information of you citizens

now I I I hear my colleagues all the time invoking former President Biden for all the bad things if he had done This I know my colleagues would be the first to call it out and we would be with I would be with you I would be with you this is such an important issue for us to stand together on and if we don't who will Who will so I I just I am frustrated along with my colleagues on this but let let me get back back to the the issue at hand because I also

want to address the overdraft piece Mr Klein you know a vast majority of people who complain to um the cfpb but also to AGS I'm a former AG I heard this as well uh about losing access to bank accounts usually blame overdraft as the reason right and we know that uh one of the areas of focus and enforcement around this if not the Attorneys General then it is the cfpb we know the CFB to cfbb took action to prevent illegal punitive expensive overdraft fees in fact in November Navy Federal Credit Union agreed to refund more

than $80 million to service members and their families by The way service members are the number one uh group that has always constantly taken advantage of in this area and the credit union also paid a 15 million dollar civil penalty for charging illegal and deceptive overdraft fees so Mr Klein you've been leading the call to end abusive overdraft practices we've heard you today can you talk a little bit more about it and it's more than just somebody uh just uh just a bad check out there right I heard one of my CL well they're just

they're just right bad checks and they should be held accountable it's more than that can you talk a little bit about what we're talking here so so it's about reordering your transactions you swipe your debit card during the day and maybe you run out of money at the end of the day well there are banks and credit un who go and reorder your transactions from the highest dollar amount to the lowest in order to maximize the number of Overdrafts that you have the state of New York just put out some new regulation uh prohibiting that

practice of reordering your account there's other things about systems of debits and credits look our outdated payment system runs on this technology called a batch which not to bore you but think about your washing machine you throw everything in you hit a button it all comes out clean at the same time one of the big Val Val of real-time payments is It goes piece by piece laundry by laundry when you do a batch you don't know what comes out well the question becomes when the batch is clean do we put in your credits first or

do we take out your debits and which order you pick debits or credits makes a big difference in the total quantity of overdraft if you post your credits before you put the money into your account right so that's another pernicious practice that we see and this is how you see a bank linked Armed services generate $92 of overdraft per customer relative to other National Banks that are around1 two5 $10 you say to yourself how can armed services Bank get $92 of overdraft per customer it's these types of tricks and trades and you're right Senator that

in my research I keep finding that that that you find these practices at military bases you find these practices at places that collocate in Walmart or seek out other things 8% 9% of Americans pay 80% of the Overdrafts those are very profitable customers for certain types of banks who try to bring them through the system and the last point I want to make as a related Senator Tillis made that comment about oh you passed a few bad checks why would why the check bounce well the check bounc because of this time delay other banks that

have given people 48 hours to cure an overdraft have seen their overdraft numbers Fall by 50% this is some of the types of reforms that Would occur if you mooved to a faster payment system and you eliminated some of these and sadly the credential Regulators over the last four years have done nothing to stop these Banks and Credit Unions who rely on overdraft for more than a 100% of their profit they're giving safe and sound camel ratings I don't understand how their management has such a high camel ratings because all they're doing is overdrafting people

they should be a Check Casher not a bank Thank you Mr Klein uh thank you very much Mr chairman I want to thank chairman Scott and rank member Warren for holding this hearing and thank you to our Witnesses today Mr mcau Mr Ganon Mr Ring Mr Klein for being here as well to talk about this important topic what we saw over the last few years the Biden Administration weaponized government at all different levels to be able to push its liberal Agenda on the rest of the country we saw it from things like uh having the

EPA push EV mandates Homeland Security ignored illegal immigration we saw uh number of different agencies uh do things um the FBI for example even identified Catholics as extremists and sought to put spies into the Catholic Church all of this undermines people's faith and belief in our system of government and what we're talking about here now where we have Regulators that Are pushing their agenda does the exact same thing it undermines the rule of law in our country if Regulators start pushing an agenda of what they want to see what kind of businesses you do business

with versus what you're allowed to do versus just saying making sure we have a safe banking system that is complying with our rules and regulations uh a legal business should not lose access to the banking system just because they deal in Firearms or Crypto or something like that because a regulator doesn't like that that's just simply wrong but that's what we've seen of course out the last two administrations it was mentioned earlier about choke point 1.0 under the Obama Administration and uh Firearms deal for example that were disfavored were prejudiced against and tried to force

out of the financial system and I think it was uh you Mr R just said that if you're out of the financial system you Cease to exist as a business um we and then of course now more recently in the bid Administration it's been the crypto industry and I got to tell you this this is an issue that's near and dear to my heart I came from the financial services industry we have the most transparent liquid Capital markets in the world because of proper regulation regulation actually got us to the point where we have these

great Capital markets and it's at risk when we Have Regulators that are undermining the faith in that we've got to make sure that we do not weaponize our Regulators to push an agenda uh Mr during uh operation choke point 1.2 and two or 1.0 and 2.0 did Regulators exceed their statutory Authority by focusing on vague metrics and reputational risk instead of safety and soundness Senator the way to answer that is to say that uh the effect of operation chokepoint 1.0 And 2.0 is that many small perfectly legal businesses are no longer an operation the people

that ran those businesses lost their jobs lost their bank accounts not sure what they're doing today but that was a backdoor way to make those businesses illegal and getting to the point that I made uh earlier if The Regulators wanted those businesses to be illegal they had to come to you and ask and they didn't instead they just executed their own Agenda without the approval from Congress and that's what I mean by a distortion of the relationship between regulators and Congress their power comes from you it does not fall from the sky so did uh

Bank regulars uh evade the notice and comment rulemaking requirements of the administrative procedures act by imposing requirements through informal guidance documents uh in both chokepoint operations uh yes they did Senator and what why do you Think they were doing that because notice and comment uh and by the way the Congressional review act um has the effect of shining a light um on the activities that are a foot you have to give notice you have to take into account the comments critically you have to do if you're going to pass a rule under the administrative procedure

act you have to do a valid cost benefit analysis and those sometimes can be difficult economists should run those It's just simply hard and oh by the way rules that never got approved by through the Congressional review act process have never taken effect so in fact you Point earlier by issuing informal guidance they were purposely trying not to come to Congress or not to raise the attention of the public of what they were trying to do is that a fair statement I I can't get into their head Senator but that's the effect for sure uh

Mr Ring your bank was one of many That was issued with consent order by the FDIC in recent years is that correct yes would you describe your relationship with your regular to have been collaborative or more combative I think it has gotten better recently in fact a a great regulator at the FDIC Joe me who spent 30 years there recently left retired invested in our bank and he's now on the board and I think that has helped but they they definitely do not make it easy To be a new and growing bank right well I

see my time's up Mr chairman but I do want to just wrap up by saying again my experience in the financial services field was that when you had Regulators that had a relationship with the commun regulated community actually helped them do their job to find the Bad actors and we all have an interest in getting rid of the Bad actors that are in our Industries and that when you take an approach where you weaponize government It's actually bad for the regulatory scheme in general because players you know companies who are good they're trying to stay

in business and actually follow the rules are discouraged because The Regulators are acting in a political manner so thank you for indulging me there Senator G thank you thank you to the for for coming on out um Mr Clan I wanted to just start with you u i I thought you made some very poignant uh assessments About the suspicious activity reports in particular you know you mentioned about just you know millions of these every year that are being used but as far as I could tell from your testimony it doesn't seem like there's any feedback

any sense of are these useful is that correct correct uh banks are not judged on the quality of their performance are judged on the quantity and the consequence is the bank has every incentive to file more without getting Information as to the quality of it this is how filings have increased tenfold in 20 years uh in my written testimony I cite some work that shows that the ability of it to lead to prosecutions uh uh for tax evasion one of the primary purposes of AML has been extremely thin and so we're seeing this situation where

the banks are filing millions of these you know costing them a lot of money and time but we're not certain whether or not they're they're Doesn't sound like they're getting any real feedback in terms of whether or not those have been useful and I think you cited in fact uh in terms of some reports it seemed like you know the IRS prosecutors maybe use only a few hundred of some out of millions of different reports that come before them is that correct it's correct 327 reports started a prosecution on tax evasion out of about 27

million that's a piece from from Nick Anthony at at Ko and let me Just say like uh the way that I've come to analogize this is the thesis of the entire AML process is like a criminal is like a scuba diver swimming deep in the dark ocean in order to evade detection and the money from the criminal activities are like the bubbles that float to the air and the idea here is that you use the data that comes in SARS and other things to find the bubbles and go down but in point of fact all

we're doing in the current process is blowing Air into the system I don't understand who's reading all of these SAR reports and this gets to the point about State licensed cannabis uh uh that was raised earlier that's federally illegal if the DEA wants to go in and shut down any cannabis company in a state they can but you don't need a bank report to tell you where the cannabis shop is it's called Google Maps it'll work really well why are we forcing the banks to continue to file all of these because this is Putting pressure

upon the banks you know when we're talking about reputational risks you know these are some of the calculations that banks are making in terms of having to file these reports one thing I wanted to ask you you know I thought you made a very convincing argument in terms of the currency transaction reporting in terms of the lifting of that number that hasn't been lifted in quite some time uh but I I guess I want to add more specificity When it came to the suspicious activity reports do you have like more concrete reform proposals there that

our committee should be uh looking into as we're thinking about our next steps yeah no absolutely so on the for example on on can State licensed cannabis right if you're running a state licensed cannabis business you should be treated like other businesses if Law Enforcement wants to deal with you go to the state capital find where where you are why You're being treated differently makes absolutely no sense the second thing is let's be clear on what the priorities are for banks to S to file SS there are areas where I think more suspicious activity like

elder abuse which has been the subject of another cfpb report is one where you could be providing more information but there's a whole host of different categories of activities and I think what we need is a whole Blue Sky approach where treasury's Financial Crimes enforcement Network and the bank Regulators are brought before this committee and the public to discuss a prioritization of what we're going after because in the 50 years we've been doing this regime we keep adding more targets never taking anybody off the list no I think that's right and you know I say

you know Mr mcau when I was you know hearing your testimony and just you know the I'm sorry for what you went through in that kind of capacity and when we Look at the reputational harm or reputational risk that banks are considering here yes you know it certainly seems like you these this excessive amount of reporting other things like that are adding to it and I I think one thing I hope we can all agree on is you know having greater sense of transparency across the board but then also some sort of feedback loop some

process by which to try to appeal because it's not just on the SS but uh You know also the the customers are unaware that you know something has been filed uh about them and so there's just multiple layers of lack of transparency on that front and you know also just I want to just raise this not ask a question but you know Mr Klein also you showed how you know with check X for instance and other components again that sense of transparency is missing as well as that lack of ability to appeal so it just

seems like that's something system Atic that I think this committee can hopefully dive in deeper on so thank you so much and I Y back Senator Banks thank you Mr chairman economy Indiana is a small town Mr mcau congratulations on your success thank you um it's it's really incredible fellow hooer to go on and do the same the incredible things that you're doing um my question for you is obviously what happened to you was wrong it was disruptive it didn't just affect you but it affected did a lot of Your employees and your partners was

there ever an opportunity for you to seek or recover uh any of the losses that occurred to you uh Senator there wasn't uh there wasn't any opportunity to recover the way losing your bank account works is you you spent a lot of time you spent a lot of efforts uh but there's not some sort of a a recouping you can do there we did uh appeal to our regulator the OCC and let them know that this was Happening to us that our bank accounts were uh being closed and that we having some disruption of services

there um but unfortunately they weren't able to necessarily help they don't um they can't necessarily say positive or negative things about any particular bank and so they weren't able to help us get banked anywhere else any can you quantify the the loss to you and others involved so we were we had a trading business that we were operating that was Doing um hundreds of millions in volume per month that went to zero uh because we were no longer able to bring on our clients cash and bring that into our um our institution because of that

we had to uh part ways with some of our staff as I mentioned in my written testimony and and I assume that it wasn't just really rich people who were affected by that common everyday working class investors that were affected too uh Senator our bank serves uh institutional Investors many of which are creating the products that the the retail investors of America use for example ETFs uh we custody for some of the ETFs that are now owned by a a broad swath of the US population okay um let me ask uh let me ask this

a different way when an innovator gets hurt it always benefits the incumbent player in the industry do you think that the big bank that debanked you had incentives to do that uh Senator actually I actually Don't think that they did that uh I think that um many of the large banks in the country were actually in active conversations with Anchorage to add crypto as an offering uh so they were they were looking to maybe become crypto custodians themselves or expand into that business line which is makes it so clear that this was not something that

they wanted to do they did not want to debank crypto rather they wanted to embrace crypto uh But they were um very suddenly forced to take a 180 Direction and go in the opposite direction not just stopping some of their crypto activity that they were looking to expand into uh but actually closing accounts the Biden Administration often claimed that cryp the crypto industry was a magnet for fraud and crime but you testified that Anchorage met the same know your customer and anti-money laundering standards that every other bank does why Do you think the Biden Administration

was so dead set on suffocating cryptocurrency uh Senator I I can't necessarily comment on the motivations what I can say is that uh if you look at the way that the BSA Works within America the BSA Works in America via the banks the banks are the ones that carry that out so the very idea of kicking crypto out of the banking system was self-defeating because the way that we get transparency the way that we get Monitoring of an industry is to have it be integrated with the banking system and so that's why I think the

debank was so wrongheaded and did not make any sense Mr Ganon when I think of De banking I think of all of my services from the bank being taken away from me but is there something in between I mean in debank banks that might put holds on transactions or Investments that we might not think of as de banking but would also be this a similar type of Political act politically motivated activity Senator that's possible the technology exists to do it but it's usually more broad-based than that uh just as an example um I happen to

be aware of a Vineyard uh where the wife of the vineyard owner happened to be an investor in the Cannabis industry the the vineyard and the individuals that own the vineyard Vineyard all lost their accounts they had nothing to do with the Cannabis industry but I guess it was a KnockOn effect as far as The Regulators were concerned because all those accounts went away that's that's the kind of unfortunately it would be nice to think that the Regulators work with a scalpel but it's really usually a five pound sledgehammer and a chisel very interesting thank

you I yield back thank you uh Senator warno thank you so very much uh Mr chairman before I begin my questioning uh I want to reiterate the requests ranking member Warren and my Democratic colleagues have made to the chairman uh to hold an oversight Hearing in this committee on Elon musk's dangerous access to the treasury departments systems that control $6 trillion do in annual payments to millions of American citizens including Social Security Medicare and tax refunds I can tell you that the people of Georgia uh are not taking any comfort uh in the notion that

uh this unelected Billionaire uh has access to these systems I think it's urgent that this committee and the Senate finance committee have a hearing to look into this matter uh to protect Americans private data data that they are required uh to provide uh and is now uh in the hands of Elon Musk and uh 22y old interns uh we are approaching the 2-year anniversary of the failures of Silicon Valley Bank Signature Bank and First Republic Bank three of the largest bank failures in US history a review of signature Banks failures found that the FDIC the

F the federal bank regulator responsible uh for making sure our money in the banks is safe did did not properly staff the team dedicated to the bank with regular with uh regular job vacancies regulatory job vacancies averaging 40% in the Years leading up to the failure Bank examiners are over stretched and Overworked and based on today's conversation it is clear that banks are begging for more communication more certainty more clarity uh from under staff Bank Regulators the last thing you want in business is uncertainty lack of clarity this is why I was frankly shocked by

the fdic's decision to withdraw job offers from more than 200 new bank examiners last week Mr kleene uh you're an expert in Bank regulation do you agree FDIC Bank examiners are Understaffed yes and do you agree that this understaffing has consequences for Bank examiners ability to communicate with banks to provide regulatory Clarity especially when banks are dealing with newer businesses that offer complicated or potentially risky Financial products or Services absolutely what I'm hearing uh is the Trump administration's decision to resend job offers to bank examiners at the FDIC is going to make it less likely

less likely that some businesses including the ones that my colleagues here today are concerned about can access the traditional banking system or that they will be well served by it is that fair yes uh one of my uh colleagues just talked about the difference between doing things with a scalpel and a 5 pound sledgehammer and this hiring freeze is a really big Sledgehammer I agree with that and and Not only did the Trump Administration resend bank examin or job offers they also emailed current examiners and basically encouraged them to quit which will only compound our

staffing problems uh for all of these businesses uh Mr client in addition to harming access to the banking system what other risk may arise from understaffing our bank Regulators well I Mean people talk uh uh about the need to create new Banks new banks have to be approved it's a charter not a license and you need people there to approve the charter uh you need people to update your models you need people to collect and promote data and information uh and there's a whole host of things that could be slowed down by simply being unstaffed

in addition the FDIC is a little bit like an ambulance it comes in when a bank fails we've had Several bank failures this year already and you need to have an emergency SWAT team who's ready to go in the FDIC does a fantastic job of handling a failed Bank it closes Friday evening Monday morning insured depositors have full access to their money that requires people and it requires trained people expert people people with experience sometimes these things are more complicated particularly in small town America where you can't just show up 30 People and sit in

a hotel and not raise some concerns and under Staffing this puts our ability to handle failures so that people have access to their money immediately at Great risk so I I I think this is very important because there's always this sort of baked an assumption that having Regulators is a drag on the business but you're you're demonstrating through your testimony that understaffing these Bank examiners is bad for business bad for Innovation um and uh everyone agrees that legal businesses uh should not be systematically excluded from the financial system however the way to do that is

to hire and to empower Regulators okay who can ensure banks are safe and sound and provide clear guidance to Banks uh on permissible levels of risk revoking job offers for Bank examiners and pushing these experts out of their jobs in the precipitous way that we've seen especially over the last Two weeks puts all of us who rely on banks to keep our money safe at risk and it's a drag on the business this is an issue that I look forward uh to continuing to work with this committee on thank you so very much for your

test thank you Senator waro um Senator Kramer thank you for letting me well you just Ste stepped out thank you for letting me take your your spot um over the past four years uh I've seen a shocking number of Industries and individuals be Denied Financial Services here in America I recently spoke with a company in my home state that is in an industry that's often politicized but always lawful here's what's happened to them they've been denied business due to quote reputational risk they've been prevented from expanding their credit facility they've been denied insurance policies and

they've been denied the ability to renew coverage uh these are these are shocking uh problems that we See here and this entire constellation of problems uh exists at multiple levels first you've got partisan ideologues that actually operate within Banks public affairs divisions or their so-called reputational risk committees uh that are exerting their influence to choke off disfavored Industries you've got externally Banks being pressured by political activist groups you've got these uh shareholder proposals that are coming at the Hest of uh a number of Outside players particularly enabled by proxy advisory firms which is another issue

that that that this committee will get at and lastly we've had activist Regulators that have abused their supervisory Authority they've imposed their own policy agendas that were never authorized by actual banking statutes or by by by the Congress Bank examiners subjective assessments of risk are ripe for abuse by ideologically motivated supervisors the banks themselves are Unable to speak out about debank because when Regulators pressure them to do it there strict confidentiality agreements there requirements I should say that prohibit these Banks from even mentioning the reasons for service denial clearly the banks themselves are very concerned

about regulatory retaliation so whether this de facto Deb banking stems from either within the banks or within regulatory agencies in both cases we have unelected individuals That are dictating what of companies can exist and thrive in our nation and with no directive at all from the American people or from their elected representatives so Mr McCaul I'd like to start with you this morning FDIC acting chairman Travis Hill released 175 documents relating to its supervision of banks who are attempting to engage in crypto related activities these documents confirm that Banks faced extraordinary resistance and actually Directives

from supervisors to pause to suspend to refrain from EXP expanding all types of crypto or blockchain related activity Mr mcau have you seen us lose American companies and innovators to other jurisdictions as a result of the Hostile posture of our federal government Senator Hagerty thank you for the question um I I actually printed out one of the documents that came from the FDIC drop this morning um it's right There in plain letters quoting we respectfully ask that you pause all crypto asset related activity this is not suggestion this is right to the heart of it

the FDIC was asking Banks to pause their activity with crypto the net effect of that like you said has been that a lot of the crypto activity has moved to other jurisdictions other jurisdictions where people feel like they'll get a fair shake like they will get uh a fair opportunity to actually Build their business uh this has been damaging many of these kinds of businesses are businesses that we want within the United States crypto businesses crypto exchanges and notably stable coins so I I thank you for your uh introduction of the bill about stable coins

I think charting a path forward here is very important to us and thank you for your leadership well I think it's incredibly important and this type of innovation that we'd like to see on American Shores is being pushed offshore can you tell me who signed that memo that you're looking at right now uh this one is signed Eric T guat I think uh uh he's the assistant Regional director well whoever this person is I've never heard their name before they certainly aren't an elected official yet this person is taking on the authority and the responsibility

to debank an industry here that has tremendous potential so I think it's it's deeply Concerning Mr Ganon I want to turn to you very quickly um they're important parts of our BSA and AML regime that are susceptible to weaponization for political purposes under our current system senior public officials and their families can be designated as politically exposed persons or Ps and once you're designated as a p um you think about it former Senator Sam Brownback was designated to P it results in higher regulatory scrutiny and Therefore an increased chance of account closure uh in your

view Mr Ganon how can our BSA and AML regime most effectively balance what are legitimate law enforcement concerns with the risks that unwarranted account closures are going to occur with the with the effect the the the actual dampening effect the chilling effect that we've seen taking place how do we balance that Senator there there are two things I think that can be done uh number one is I think the Partnership between the banks and The Regulators needs to get into the 21st century and there's much better technology that exists rather than spending sending armies of

people to go around filling out SARS and filling out currency transaction reports if you have better data you will have better results and if you have that result that better result then you can determine is somebody being debanked because in fact they're a risk uh or are they being Debanked because they may have some some sort of Association that The Regulators find unpleasant thank you Senator gyo thank you so much chairman and ranking member um Mr mcau in your testimony explain how encorage digital Bank manages risk identifies suspicious activity to comply with regulations so how

often would you say you detect potentially suspicious activity among your Banks Clients uh Senator we have active monitoring programs that look for suspicious activity one of the things we're actually most proud about our systems is that we think we they go beyond what traditional banks are able to do in that we look not just at point-to-point transactions which are available in traditional banking but because of the rich data that's available through blockchain systems we're able to detect far more of that Now our client base that we serve is primarily institutional investors so this is not

the place that's necessarily set up to have a lot of potential money launderers in there uh but we do make sure that any suspicious activity that we do detect is detected and um and you go through the proper protocol filing when you see something everything else like that to abide by the regulations so you so it doesn't come down on you or or your shareholders did you ever because Of just kind of the a potential risk or feeling of risk uh within your own discretion just or maybe just felt like it's just not worth the

hassle uh kind of uh choose to not open up a client or decline a client of of any sort uh absolutely CER there are use cases that are bank is not well set up to support uh there are client types or types of client activity that are not appropriate yet for the systems that we have in place uh and so we we do uh Express some amount of judgment on that on whether or not we can properly take on an account and handle the risks that may or may not be present or just the hassle

that may come with it because then you have to communicate with government and have to go back and back and forth for something that may not have much of a marginal return on investment yes I think this is a standard banking procedure yeah so it's important that we all think about this Aspect of the problem because every bank and uh you know different Regulators you know have different risk tolerances and I think that's a very healthy thing for for us to understand but we should be very W very worry of kind of overcorrecting us on

the other end uh that could also increase risk to the the banking system and I you know I think you're a good example of how to do it correctly but others may may not um Mr ring in your testimony you you uh Quote had to deal with duplicative and overly burd and Regulatory uh burden burd and Regulatory burden we done sorry about that uh during the six-month approval process for old uh Glory Bank what specific processes were duplicative and how would you propose we consider addressing these problems while still making sure our Regulators preserve the

risk-based approach to monitoring safety and soundness in the baking system oh that's a great question thank you so to Put this in perspective we bought a $10 million bank with only $3 million of loans in Elmore City that's probably smaller than some bank accounts in here and it took not me I wish to be honest it took six months three rounds of additional information requests and 300 pages of submission and then an all hands call and and we had to deal with the FDIC the Federal Reserve and then even on the All Hands call we

have the cfpb there and respectfully I have never Talked to a regulator that was actually a banker in in all respect like if you deal with the FAA they're former Pilots if you deal with so many organizations they're actually the former business people I've only dealt with the F with the federal Regulators who respectfully were bureaucrats and these are people who have never signed the front side of a check and I feel like they do not have the ability to to apply judgment to some of the these rules What specifically Would you recommend then I

I would going forward make sure that you hire at least half of all Regulators with prior banking experience who actually know the impact of their of their Reg ation and any other I would I would go back and find the last chairman of either the FDIC the OCC that actually was a banker I really think it's about that and then respectfully I think they need to quit stepping over dollars to pick up pennies if you think about the banks that failed In 20123 it was lack of liquidity and yet they're focused on the minutia of

Banks and focusing and missing the the force for the trees such as loans and liquidity is what causes Banks to fail not you know respectfully an AML policy all right thank you and Mr Clint I think you have a different opinion yeah I mean Silicon Valley Bank didn't fail because of a lack of liquidity it failed because of a horrible investment strategy in terms of its treasuries that that that It held except for the run and Mr so right right the Run occurs when you realize the bank is out of capital and the first people

come when you're at a 93% uninsured deposit because you're running a $250 $250 billion bank with four branches it was not a Regional Bank it was a tech startup bank and part of the thing that frustrates me so much was it was bailed out it's the single largest depositor at Silicon Valley Bank was a crypto stable coin company that Had $3 billion and as an economist I can't dream of a better natural experiment to understand the solvency of this stable coin than the fact that on Friday afternoon that b Silicon Valley Bank was being closed

under normal operations which would have incurred losses on un depositors and that stable coin went from a dollar to 87 on Saturday as people started to run then Sunday The Regulators bailed out took all of our money taxpayer money fees That are that are going to banks are going to charge back on overdrafts and other low-income people and bailed out $3 billion back to that crypto and it stable coin went right back up to par and so what you see in this situation is there is a connection in crypto and the banking system what you

see in this situation is that Banks fail and Silicon Valley Bank failed for a variety of reasons but primarily because of its strategy right and I do agree with Mr Ring on some of these concerns about the relationship between Banks and their Regulators the CEO of Silicon Valley Bank sat on the board of the San Francisco fed thank you so much for heading over to Senator Marino well thank you thank you uh chairman for for the time for the hearing I think it's very uh timely I I think one of the things I'd like to

say at the beginning especially for people watching this is this can be a very clinical conversation We we're talking about de banking but the reality is you have entrepreneurs that are absolutely getting devastated by these policies I think it's hard for some of my colleagues who've only been maybe attorneys or career politicians to know what it feels like as an entrepreneur to chase a dream and have that de dream completely Crush not because you had a bad idea but because you had a government that was looking out for Itself and not looking out for you

so let me just say that from the beginning let me start with uh with you Mr mcau uh what type of uh cryptocurrency did Al Capone use uh I would say that primarily the Privacy coin known as the US dollar gotcha okay so uh I'll look that one up see if we can ban that one how about Pablo Escobar my fellow Colombian who gave a lot of reputational risk to fellow Colombians in what he did what Kind of crypto did he use uh I don't think he used any crypto gotcha how about um Myer Lansky

I'm not sure there was some comments about uh dictators in North Korea being empowered by crypto uh how about Ferdinand Marcos what was his cryptocurrency of choice he did not have one Joe Kennedy did not have one okay gotcha so maybe money laundering wasn't invented by digital currency would that be fair to say very fair to say okay Let's move on to uh this topic of uh Mr Ganon by the way uh your bank helped me start my business let me just give that uh little disclaimer up front I appreciate your for CH proud to

know that Mr Fish uh was uh very helpful so let me just get that conflict out I've subsequently sold all my businesses so I have no conflicts but let me just say this um how much of loans do you just automatically forgive like I was a really good client I was a really good Client made payments when could I call you and ask you to forgive my loan I don't believe you could do that Senator gotcha so I'm curious because there was a conversation from one of my C fellow Senators earlier about the rogeness of

the Trump Administration and yet Joe Biden illegally according to the Supreme Court forgave student loans and I don't remember that outcry that need for an immediate Senate hearing on why we were not forgiving you know not chasing why Would forgive students student loans now maybe my democra colleagues think it's great that somebody becomes a gender Studies major Brown and racks up 200,000 student debt but I had technicians working for me that racked up thousands of dollars in tool loans that the bank wasn't really so what's wrong with a technician that a gender Studies major should

get their loans forgiven and why aren't we seeing outrage on that Mr Ganon have you ever heard of such a Thing as loan forgiveness from Banks and please give me the name of that bank um I I don't have a name for you Senator but what I can say is uh some of my best friends at the banks where I've worked were credit risk analysis and U uh they look very hard at each loan and they analyze the credit and if we make the loan we expect you to repay it well that seems like an

impossible standard so let's move on Mr Ring to you on this topic of Regulation it seems like there's a debate in this room of who's caused the banking the good news is we've agreed that there's de banking I think that should be the first the most people were denying right so we've agreed on that that's that's an incredible accomplishment of the 119th Congress we've reached that conclusion so the question becomes uh why and who's responsible now in your mind do you think that there's is it easy for a Small Community Bank let's say for example

in montar Ohio to compete with JP Morgan Chase or Bank of America it's almost impossible I find that about 75% of our time is spent serving regulators and only 25% serving customers and when you're on small margins of a Community Bank you cannot compete with the big guys easily now we're working hard at it but is very hard because we have the same regulations as a big bank but yet we have less people and less money so You don't have 2,000 lawyers at your back in call unfortunately I'm both the lawyer and the CEO along

with my wife so we are probably HR also she is and marketing all right there you go and Mr Ring I I I I actually applaud your testimony around helping workingclass Americans that are getting crushed by Banks I think it's fair to say a lot of people know somebody or have themselves been screwed by Banks I think that's fair to Say and I appreciate that you're doing that but I think it's competition that ultimately uh makes that go away don't you think like if there's if there's just a lot more Banks a lot more choices

don't you think that's the best Elixir so um America has almost 10,000 banks in credit unions I think that there are some serious structure problems how many did we have 10 years ago uh uh we had more Senator how many we have 20 years Ago we had a lot more because you couldn't Bank in multiple competitions dropped you want more Banks so so competitions dropped dramatically so let me just end with this and I I hope my colleagues understand philosophically as a business guy the most greedy organization on the planet is the government you pay

your taxes Mr Klein one day late what do you get paid like what do you pay like a $5 overdraft fee no you get late charges interests that Would make the mafia jealous so let's just understand that the reason the government is so damn greedy is because there's no competition in government we need more competition in banking that will fix us thank you sir Senator also Brooks thank you uh first of all thank you to chair Scott and ranking member Warren uh for hosting today's hearing and I want to thank all of our witnesses as

well for for your participation um I Can say I agree with um all of the others who you've heard today who believe that we should both be expanding access to credit uh and capital for all Americans and that we're concerned about making sure that we keep our financial system safe as well from criminals and fraudsters and scammers and I happen to believe that we can do both at the same time um and so I have um I also like Mr Mr like to say that um that Mr colie Mr uh ring you've both spoken about

the Need to protect the Integrity um of our financial system from politics and I have to tell you that I could not agree more um and so these should be fairly easy questions that I have just for both of you uh you both run businesses that depend on maintaining the trust of your clients and so my question is would these clients trust you if you share their most sensitive financial information with someone outside your bank and without their Consent uh Senator no they would not trust us if we shared that information no Senator and so

I ask as well so should an unelected billionaire be snooping on Social Security payments say for example to my elderly parents would you agree that that was wrong well if you're talking about Elon Musk I I believe the unintended consequences of that is probably offset by try to save taxpayers money and we haven't found better way to do it Yet and so you believe that that your clients and other elderly people who find that someone is snooping around on their Social Security payments that that they would be okay with that I don't know Elon Musk

but I don't think that's what they're doing I think they're looking at actual tax paay of money is going out the door uh Senator if we hired an external auditor to come and look at our books to make sure that we were doing a good job Of being fiscally responsible I think our clients would welcome that and you think that be comfortable with doing that someone doing that who was outside of your bank structure say for example could I do that and look at your clients information Senator going through the right process and procedures for

hiring and uh bringing that Auditor in would be extremely important and making sure they had Direct uh careful access to the data would be important so I just say I'd Echo Senator Warren and Senator van Holland's um sentiments on the seriousness of this and I really hope uh that our Business Leaders will and have the courage to speak out about a practice that I can tell you um I know you would never allow for your own clients and so my next question uh is for Mr Ganon and for Mr Klein uh there have already been

studies on how Banks and Bank Regulators can better balance the need for safety and soundness with Financial Financial inclusion so for example a 2023 report from the treasury Department examines circumstances where financial institutions indiscriminately relationships with broad categories of people in the name of mitigating risk that report demonstrated uh that unfair debank also often results in less Financial inclusion less fairness and ultimately consumers and small business owners are being pushed toward less safe and less affordable Financial products And services and that 2023 report recommended that Financial Regulators promate rules that promote a supervisory culture that

balances uh legitimate risk mitigation and strategies uh that include Financial inclusion so Mr Klein as far as you are aware have Regulators adopted this 2023 recommendation no they have not Regulators push Banks to use systems like cheex and other do not Banks uh uh lists for uh uh K BSA uh AML for other things for other Types of risk platforms and they do not adopt this and I've been extremely disappointed at what the credential Regulators have have done this bankon movement has done a much better job in my opinion of trying to get a better

screen to let folks in folks who are not fraud risks I'm unaware of anything in the bankon program that has a greater risk of fraud than any other type of account and so I've been uh uh from my experience I've seen too little adoption Of alternative ways to bring people into the system and too uh too slow adoption by Regulators to do something different thank you and just final question the community reinvestment Act is a law that encourages Banks uh to meet the credit needs of underbanked communities especially low and moderate income neighborhoods and this

Law requires banking agencies to assess banking institutions records of meeting the credit needs of its uh community so I Just want to ask quickly Mr Klein how can supervisory de banking make it harder for banks to meet their Community reinvestment obligations so so I I struggle because a lot of these overdraft Predator Banks I've seen have gotten outstanding community reinvestment act from their Regulators who keep giving them a passing grade even when the bank loses money on every element of its business model other than overdraft so I I've seen some deeply Pro Problematic practices thank

you so much thank you ma'am we'll turn to Senator Kramer thank you Mr chairman for having this important hearing ranking member uh Warren as well for uh for your leadership and congratulations to both of you the title looks good on both of you and thank you to our Witnesses I have to just State this hair onf fire outrage by our Democratic friends over a successful businessman giving his time away from His business I might add to look at the books of the federal government to identify waste fraud abuse and inefficiencies is some sort of a

crime while Mr Rings bank has never met a a regulator that has a business background or a banking background the irony is really quite rich I think we should have a few more business people looking at our federal books that said thank you all for being here my main interest in the debank uh discussion and I'm Interested in all of it and I think both sides have brought up a lot of interesting issues but it's not so much the individual that I'm interested or even the individual company but rather the categorical discrimination against large swaths

of businesses entire industries of businesses constitutionally protected Industries legal Industries I find frightening and I just want to reconcile at least in my own mind the different Answers that you that the three of you gave to to Senator Kennedy about which came first is this a problem with The Regulators or is this a problem with the bank presidents to which I'd say yes the precursor to The Regulators quite honestly in the regulations the precursor to this whole de banking thing was this Bizarro ESG movement in Corporate America and that was happening before The Regulators thought

hot dog we got another issue we can you know shove At these guys so um whe whether it's i' I've talked to many of the bank presidents who very much support the legislation that that me and 40 of my closest friends so far have in introduced the fair access to Banking Act which doesn't require by the way a bank to do anything but it does prohibit them from categorically discriminating against legal Industries and the reason some of the bank presidents who don't have never Dared say it out loud tell me they support it is because

they want this burden removed from them they want this political pressure from their 30-year-old staff or or the regulator uh you know that they fear or the political movement of the day or the or the activist investors that that are trying to impose their values um they want that removed from them I'm just saying let's not discriminate against large industry and So um I guess I guess I would just just ask each of you what's What's um what's your sense of of a a bill like a fair access to Banking Act that again doesn't require

anybody it's not saying you have to bank this industry it says you're prohibited from discriminating against does this seem like a radical idea well if I could go first sure I uh I think The Regulators have pushed debank of Industries what you're talking about I think mid-level Executives push debank Of individuals for political causes and My worry is Senator with the with a good intention Bill like that you'd have to prove somehow that we followed the law and so every time a relationship didn't work out there would have to be some type of reporting and

so I actually respectfully think the free market is always the best way to solve these problems with more Banks let Banks Bank who they want if a pro-life Bank wants to exist a not Bank planed Parenthood Let them because there's a bank that would love the bank plan Parenthood well if you're but if if you're going to discriminate against large Industries should the should you be able to be insured by the federal government well that that's a great question because what's unfortunate is The Regulators were doing this through policies and guidelines as as we've already

talked about like Digest those you know fil 1622 and Sab 121 uh and and That is how you stop it is holding those individual Regulators accountable I feel Mr gon yeah uh Senator if I could respond to that by simply saying that um what what needs to be done consistent with the act that you have introduced is simply that there's more transparency and there's more notice when uh these kinds of decisions are made and one of the there there's been a a long sort of uh volume of executive orders coming out of the White House

but one of them Revived an executive order from 2019 called 13892 that executive order gives more due process to folks who wish to contest the actions of regulators then the due process clause itself allows well maybe a law that puts that in in statute would be better correct my time's up Mr thank you Senator thank you both Senator lumus thank you Mr chair chman thank you ranking member and uh I think that today Was the first time I've ever heard the term hot dog uh used in testimony and I so appreciate that from my colleague

from North Dakota um Mr Ganon uh it's a pleasure to see you here today I want to thank you for everything you've done uh for the state of Wyoming uh in the last few years I just want you to know I'm personally grateful um and I'm going to start with you in in your legal opinion what is reputational risk uh That would be very difficult to Define Senator because it really has no definition um it's something that as I said earlier it's malleable it can be reinterpreted it's in the discretion of The Regulators so what

is reputation risk today might be something different tomorrow does it give Bank examiners license to censor viewpoints or base regulatory decisions on someone's subjective Viewpoint of what is is a controversial comment it can well let me Show you that it does so here's this quote from an internal excerpt it's a confidential Federal Reserve implementation handbook on account access it requires that Federal Reserve staff consider whether a person has made a quote controversi controversial comment in making decisions about access to the payment System and of course access to the payment system is a defining feature of

a bank is it not correct very much so without without that a bank is a vault so is it dangerous for the FED to serve as judge and jury on a particular Banker's speech Senator I'm I'm I'm kind of absorbing that still a little bit um because it's it's really quite unusual I've never seen anything like that before but my immediate reaction is uh number one it It sort of proves out the comments I've been making about the subjectivity around reputation risk because who's to say what is controversial and what is noncontroversial that's number one

number two uh it's it's chilling to me that um it's possible that access to the Federal Reserve payment system might be dependent on whether uh the applicant was engaged in some sort of controversial commentary or or now I can see it or activities uh that's that's The kind of stuff that is uh that's the kind of thing you see in countries that appear on ofac lists so I don't see how it has any place in assessing uh the the capabilities of an institution to have access to the to the federal banking system we we don't

want to be in a place where uh free speech is chilled because there's a concern that I might not get access to banking services uh I I agree very much Senator and I've been very Deeply concerned by the Kansas City Federal Reserves at uh precluding places like the credit union in Colorado from accessing the payment system and that chart puts my hair on fire um if I might add to that by the way um I believe in litigation involving an institution um in Wyoming custodia Bank I believe if I if I recall correctly from the

oral argument uh the position of the Federal Reserve is that the Federal Reserve Bank of Kansas City Has complete and unfettered discretion as to whether or not they allow access to the payment systems well that's a lot of power yeah thank you Mr Ganon um and and that is a concern of M um I know this is hard to see I couldn't see it from where you're saying I can I can see it now okay let me read it to you all um this again is an internal memo within the FED it says Reserve Bank

staff generally should consider the Conduct of the institution and its leadership and whether association with the institution poses undue reputational risk to The Reserve Bank is the institution's leadership associated with controversial commentary or activities what is a controvers controversial comment or activity what is that Senator I have no idea is it in the eye of the beholder it's completely in the eye of the beholder yes Mr Ring what is a Controversial commentary or activity well considering things I've said about proam causes and the flag I feel like that was written for me Mr mcau uh

it it appears to be a tacit attempt to hold back speech that is considered undesirable and thank you what I would call this is hard proof of operation choke point and it's now been discovered by Congress thank you Mr chairman I Yield back thank you Senator very much for your thoughts and your comments thank you to each of the witnesses for participating in today's really important hearing more to come by the way this will not be the last time we have an opportunity to talk about de banking in this nation um for senators who wish

to submit questions for the hearing record those questions are due one week from today Wednesday February 12th Witnesses have 45 days from that Day to follow up with answers thank you and the committee is a j thank you sir yes ma'am