U.S. federal bank regulators are imposing restrictions on banks that serve the crypto industry. This action follows a series of bankruptcies last March, where authorities held cryptocurrencies accountable for the failures.
Crypto and Banking
The Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) have requested certain banks to limit deposits from crypto companies to 15% of their total deposits for risk management purposes. Regulators are concerned about real-time payment platforms favored by crypto firms, which can operate 24/7 outside of normal business hours.
Elaine Hetrick, director of Silvergate Bank, indicated that her bank decided to cease operations due to mounting pressures following the FTX collapse. Other banks, including Customers Bank, Cross River Bank, and Western Alliance Bank, are facing similar regulatory scrutiny.
Legal Discussions and Expert Opinions
Officials from the Cooper & Kirk law firm believe the ongoing pressure is not legally justified.
“Limiting crypto deposits may violate the principle of due process in the Constitution.”
While some legal experts argue that regulators are overstepping their boundaries, others maintain that banks are acting within risk management protocols.
Regulators state that these restrictions are aimed at preventing banks from becoming overly dependent on specific industries. However, within the crypto industry, this situation is referred to as “Operation Choke Point 2.0.”
Concerns persist that regulatory pressure is making it difficult for crypto companies to access U.S. dollars. Banks report that they are re-evaluating their business models due to these restrictions. While some banks are stopping operations due to the limits on crypto deposits, others have had to update their risk management strategies.
Opinions vary on the legality of the regulations imposed on crypto deposits. Some experts argue that these restrictions do not violate the Administrative Procedure Act, while others view them as a constitutional infringement. Representatives from banks and the crypto industry claim that regulatory pressure negatively impacts the sector and restricts financial access.
Although regulators aim to ensure banks maintain a healthy and diversified deposit portfolio, these measures hinder banks’ ability to serve crypto companies.
