Tether claimed to be backed 100% by USD (this claim was walked back in successive stages, but at the time of the 2017 bubble, it was still the claim). To have that, you need $100M - $1B of USD currency sitting in a bank. At that scale, any bank needs to be asking where that money came from to comply with regulations. The goal of Tether, quite literally, is to park money without having to answer those pesky questions, which means no reputable bank is going to take them as a client. Evidently, the "banks" Tether found who could work with them ended up being money launderers who were busy skimming off actual assets Tether was accumulating.

More generally, cryptocurrency carries with it a whiff of KYC/AML regulatory evasion. With the purpose of stablecoins is generally stated as pretending you're trading in USD without actually doing so (and the financial regulations implied by actually doing so kicking in), it is not hard to infer that many, if not most, users are interested solely in evading this rules, which is going to cause banks' compliance officers to look at it very skeptically.