US Banks' Anti-Crypto Called Operation Choke Point 2.0
By Olivier Acuña | TH3FUS3 Chief Editor
October 9, 2024 03:40 PM
Reading time: 1 minute, 42 seconds
TL;DR Federal bank regulators in the United States have been imposing limitations on banks dealing with the crypto industry, raising concerns about potential breaches of federal law. Sources reveal that these actions may be part of an unofficial initiative termed 'Operation Choke Point 2.0', which aims to curb the crypto industry's access to stable banking services.
Regulatory Scrutiny Intensifies
United States federal regulators, including the Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC), have reportedly directed several banks to limit their deposits from crypto companies.
The cap is often set at 15% of the bank's deposits. According to sources familiar with the situation, this move is part of an effort to manage risk.
Additionally, there is concern over crypto companies' use of real-time payment platforms, which allow payments to be settled around the clock.
Impact on Crypto-Banking Relations
The regulatory guidance primarily emanates from the Federal Reserve Board, with the FDIC playing a supporting role. This guidance has made it increasingly difficult for banks to specialize in servicing the crypto industry.
Consequently, insiders have noted that crypto companies find it challenging to secure banking services under the Biden Administration.
"Operation Choke Point 2.0" has become shorthand in the crypto industry, used across social media and daily employee conversations.
Legal and Regulatory Concerns
According to the Administrative Procedure Act (APA), new banking regulations must be proposed and opened for public comment.
However, some sources suggest that the Federal Reserve might bypass this formal process. A law firm argues that capping crypto deposits could violate the Fifth Amendment's due process clause. Others contend that these are informal enforcement actions not covered by the APA.
Banks Under Pressure
This regulatory guidance has affected several banks, including Customers Bank, Cross River Bank, Western Alliance Bank, and the now-defunct Silvergate and Signature Banks.
The enforcement began in late 2022 following the collapse of the crypto exchange FTX. Silvergate Bank's Chief Administrative Officer, Elaine Hetrick, stated in a legal filing that supervisory pressure led to the bank's voluntary wind-down.
Divergent Opinions on Regulatory Actions
The crypto industry is divided on the legality and constitutionality of these regulatory actions. Some experts argue that enforcing deposit caps is necessary to mitigate risk.
Others believe it constitutes a violation of due process. Austin Campbell, an NYU professor, suggests that regulators may breach the APA if the guidance is uniform enough to be considered an unwritten rule.
