Let’s go back to 2012. Operation Choke Point was a coordinated campaign by the FDIC, the OCC, and the Board of Governors of the Federal Reserve System that aimed to use banks to target industries that were out of favor with the administration, including gun stores, pawn shops, tobacco stores, payday lenders, and other brick-and-mortar businesses.
The law firm Cooper and Kirk challenged Operation Choke Point and ended the weaponization of the Federal Reserve, FDIC, and OCC.
That same firm is now challenging Operation Choke Point 2.0, which alleges those same agencies (with some of the same people back in power) are doing the same thing to cryptocurrencies.
It’s a 35-page document being submitted to Congress that can be read here. Below are some of the mind-blowing things in the report.
Federal Warnings To Banks About Crypto
- The Biden Administration’s OCC eliminated a rule aimed at guaranteeing fair access to banking services for industries previously impacted by Operation Choke Point during the Obama era.
- The rule would have required national banks to evaluate customer risk impartially and prohibit them from denying financial services based on subjective reasons.
- The rule was set to take effect on April 1, 2021, but was suspended by the Biden OCC just seven days after taking office. 🤬
New And Special ‘Unofficial’ Rules For Crypto
- In November 2021, the OCC launched Operation Choke Point 2.0, which restricted banks from participating in crypto activities and limited the OCC’s authority to charter national trust banks involved in crypto.
- Banks are now required to notify their supervisory office in writing before engaging in any crypto activity and expect their crypto activities to be reviewed. 😠
The FDIC Joins Operation Choke Point 2.0
- On April 7, 2022, the FDIC issued a financial institution letter to request notification from FDIC-supervised institutions that are considering or already involved in crypto-related activities.
- The letter warned that such activities could pose significant risks to safety and soundness, compliance, financial stability, and consumers. 😒
The Federal Reserve, OCC, And FDIC Assault Crypto Customers
- On January 3, 2023, the Federal Reserve Board, the FDIC, and the OCC released a joint statement expressing safety and soundness concerns with businesses involved in crypto-related activities.
- The statement encouraged banks to be aware of the risk of fraud and scams in the crypto sector and to watch out for misleading representations.
- The statement singled out crypto for special scrutiny without providing guidance on managing these risks across all contexts.
- Later in the same month, the Federal Reserve issued a policy statement discouraging banks from holding crypto assets and put state banks on notice that legal permissibility is not enough to engage in a particular activity.
- The statement was entered into the Federal Register as a final rule without public comment.
- On February 23, 2023, the three federal banking agencies issued a joint statement warning banks of potential liquidity risks posed by the crypto industry. 🚰
Banks Told to Reject Crypto Clients
- Crypto companies are facing difficulties accessing the ACH network as their payment processors end services for them. Banks are also facing pressure to sever ties with crypto businesses.
- In 2022, Senator Toomey learned from whistleblowers that the FDIC had instructed its regional offices to send letters to banks discouraging them from working with crypto firms. 😱
Individuals Bank Accounts Targeted For Shutdown
Operation Choke Point 2.0 is now targeting the men and women who work in the crypto industry.
- In January 2022, for example, Hayden Adams, the CEO and founder of Uniswap, a popular decentralized exchange, revealed that J.P. Morgan Chase had closed his personal bank accounts “with no notice or explanation.” Mr. Adams further revealed that he knew “many individuals and companies who have been similarly targeted simply for working in the crypto industry.”
- Swan Bitcoin CEO Cory Klippsten revealed that, in late 2022, Citigroup had shut down both his company’s and his personal accounts without explanation.
- Several banks have pulled back on their exposure to the asset class. While the banks have been unwilling to offer any explanation for their actions, former CFTC Commissioner Brian Quintenz believes it is clear that the move was likely an instance of shadow de-banking of crypto by Federal Reserve and OCC bank examiners. 👿
Bank Regulators Took Down Solvent Banks Heavily Involved In Crypto, But Saved Insolvent Banks
- In March 2023, Silvergate Bank and Signature Bank were both affected by recent industry and regulatory developments.
- Silvergate Bank announced it would shut down, while Signature Bank was ordered to close by New York State bank regulators.
- Despite having $110.36 billion of assets to cover $88.59 billion of deposits, regulators moved in to close Signature Bank, even though the bank was not insolvent.
- The closure of Signature Bank, which was the first FDIC-insured bank to enable its commercial clients to access a blockchain-based, real-time payments platform, is seen as part of the crackdown on crypto, which violates the FDIC’s statutory obligations.
- The FDIC blatantly discriminated against banks involved in cryptocurrencies, which were not insolvent, while protecting and propping up failed banks. 😮
The Federal Bank Regulators Block Banks From Serving the Crypto Industry
- The Federal Reserve has delayed processing state-chartered banks’ requests to access the Federal Reserve system, leading Custodia Bank to file a lawsuit.
- The Federal Reserve Bank of Kansas City denied a state-chartered bank’s application, violating federal law.
- The OCC is re-evaluating provisional approvals for charters given during the previous administration.
- Anchorage Digital Bank received a consent order from the OCC, and Protego Trust Bank’s conditional charter was allowed to expire, causing layoffs and the loss of $70 million.
- Since the OCC’s Interpretive Letter 1179, no new national trust bank charter has been granted to any crypto-focused company. 🤔