Redacted letters from the Federal Deposit Insurance Corp. show that the agency called for a “pause” on bank-crypto activity in 2022, appearing to support a long-held industry assumption that federal regulators acted to keep traditional financial institutions out of the nascent and often volatile industry.
“We respectfully ask that you pause all crypto asset-related activity,” the regulator wrote in a letter to a bank unearthed via Freedom of Information Act request by Coinbase-affiliated History Associates. “The FDIC will notify all FDIC-supervised banks at a later date when a determination has been made on the supervisory expectations for engaging in crypto asset-related activity.”
Consultancy firm History Associates was granted access to 23 letters from the FDIC, many with similar requests, compelled by a judge following a June lawsuit against the FDIC and the Securities and Exchange Commission meant to lead to such an outcome.
“What this proves is that the FDIC undertook a very concerted effort to deny regulated institutions, primarily banks, the right to offer legal services to the crypto community and regular folks interested in cryptocurrency products in ways that should disturb anyone, whether you're in the crypto business or not,” Coinbase Chief Legal Officer Paul Grewal told Banking Dive. “If it's crypto today, it could be any other business tomorrow.”
The concerted effort Grewal spoke of is broadly called Operation Choke Point 2.0, an alleged ongoing crackdown on digital assets under the Biden administration.
The alleged effort gets its name from Operation Choke Point, an Obama-era effort that “choked off” high-risk industries like payday lending, gambling and firearms from banking access.
“One thing you can tell from the letters is that this wasn't just one rogue bank supervisor going off half-cocked,” Grewal said. “These were multiple regional offices from all across the country, all executing the same playbook.”
That playbook, said Grewal, is for the FDIC to tell banks to stop offering crypto services. If the banks continue to offer such services, Grewal surmised, the regulator’s next step is to pepper the bank with questions into “all manner” of business on a short deadline.
“If you're a regulated bank just trying to do your day job, you're basically told that if you proceed with this service, you're going to essentially invite an audit by the federal government at very little time to respond,” Grewal said. “You're going to respond to that negative incentive.”
Many of the FDIC’s letters to banks are copied to the Federal Reserve, noted Custodia Bank CEO Caitlin Long, who has also been a vocal critic of Operation Choke Point 2.0. She’s been in battle with the central bank since it denied Custodia’s application for a master account in January 2023.
“The FDIC ‘pause letters’ were functionally cease and desist letters, because a three-year delay isn't a mere ‘pause.’ It reminds me of Nixon's ‘temporary’ suspension of gold convertibility in 1971 – that wasn't a ‘pause,’ either,” Long said in an emailed statement to Banking Dive.
As much as the Biden administration has drawn ire from the crypto world for what critics call regulation by enforcement, the incoming Trump administration has elicited enthusiasm from the crypto community for its perceived crypto friendliness.
President-elect Donald Trump, once a crypto opponent, tapped crypto lobbyist and former commissioner Paul Atkins to lead the SEC. SEC Chair Gary Gensler, who has previously said the crypto industry is full of “hucksters and frauds,” will leave his post Jan. 20.
Trump also picked investor and entrepreneur David Sacks as “White House AI and Crypto Czar,” according to a social media post last week. Sacks will guide the upcoming administration’s policy for the two technologies.
“If we look at several of the recently announced nominees, we're seeing people who have a much more balanced view of crypto. I don't think anyone is in favor of unregulated crypto – certainly Coinbase isn’t – but the need to protect investors and consumers has to be balanced against promoting American innovation,” Grewal said.
Grewal said he plans to seek a court mandate that the letters be cleared of redactions, which will unveil which banks and services were specifically targeted.
An FDIC spokesperson directed Banking Dive to previous comments on the matter.
“Banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation,” the FDIC, Fed and Office of the Comptroller of the Currency said in joint guidance in 2023.
In 2022, the agency expressed concern about crypto’s evolution, noting at the time: “While the FDIC supports innovations that are safe and sound, in compliance with laws and regulations, and fair to consumers, the FDIC is concerned that crypto assets and crypto–related activities are rapidly evolving, and risks of this area are not well understood given the limited experience with these new activities.”
