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Thread: Operation Choke Point focused on crypto markets?

  1. #1

    Operation Choke Point focused on crypto markets?

    Amid the worst banking crisis since 2008, four Republicans in the U.S. Senate, led by Senator Bill Hagerty (R-TN), have written a letter to the heads of several federal banking regulatory agencies asking them to explain the coordinated effort to crack down on crypto-related banking providers in recent months.

    The letter was addressed to Federal Reserve Chair Jerome Powell, Federal Deposit Insurance Corporation (FDIC) Chair Marty Gruenberg, and Office of the Comptroller of the Currency (OCC) Chair Michael Hsu, seeking further insights into recent statements made by the banking regulators that have called for heightened supervision of crypto-related activities.

    “These releases have caused banks to reevaluate their decision to provide banking services to the crypto sector, resulting in crypto firms’ bank accounts being unexpectedly closed,” the Senators wrote. “This coordinated behavior seems disturbingly reminiscent of Operation Choke Point… an Obama Administration initiative where federal regulators applied pressure on financial institutions to cut off financial services to certain licensed, legally operating industries simply because certain regulators and policymakers disfavored those industries.”

    The result of an investigation into Operation Choke Point found that businesses were illegally targeted by government officials, and the FDIC was forced to take steps to clarify that banks are allowed to provide services to legal businesses and provide enhanced training to its examiners.

    “Unfortunately, nearly four years after the enhanced training, banking regulators seem to be reverting to old practices,” the letter said. “Even if the actions towards the crypto economy emanate from different regulatory concerns – it appears that the desired outcome from the banking regulators is similar to that of Operation Choke Point – the de-banking of the crypto industry in America.”


    bold emphasis is mine:
    ... Regulators announced late Sunday that Signature was being taken over to protect its depositors and the stability of the U.S. financial system.

    The sudden move shocked executives of Signature Bank, a New York-based institution with deep ties to the real estate and legal industries, said board member and former congressman Barney Frank. Signature had 40 branches, assets of $110.36 billion and deposits of $88.59 billion at the end of 2022, according to a regulatory filing.
    According to Frank, Signature executives explored "all avenues" to shore up its situation, including finding more capital and gauging interest from potential acquirers. The deposit exodus had slowed by Sunday, he said, and executives believed they had stabilized the situation.

    Instead, Signature's top managers have been summarily removed and the bank was shuttered Sunday. Regulators are now conducting a sales process for the bank, while guaranteeing that customers will have access to deposits and service will continue uninterrupted.
    For his part, Barney, who helped draft the landmark Dodd-Frank Act after the 2008 financial crisis, said there was "no real objective reason" that Signature had to be seized.

    "I think part of what happened was that regulators wanted to send a very strong anti-crypto message," Frank said. "We became the poster boy because there was no insolvency based on the fundamentals."

    Kitco report has a few more details on Barney Frank's assertion:
    As it stands now, Signature Bank’s customers have automatically become customers of the FDIC-controlled Signature Bridge Bank. Regulators will proceed to sell the bank and its assets in the coming days, which will provide additional insight into how serious the problem actually was, according to Frank.

    "What's the sale price?” Frank said. “If it's got to be sold at a very severe discount, well, maybe that shows there were problems with Signature. If it's sold at a better price, which I think it will be, that's proof of our argument that they shut down Signature as a general warning shot against crypto rather than anything that was Signature's fault."

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  3. #2
    They don't need to, crypto will die on its own.

  4. #3
    On Tuesday, Tom Emmer, Majority Whip of the U.S. House of Representatives, sent a letter to Federal Deposit Insurance Corporation (FDIC) chair Martin Gruenberg, calling on the FDIC head to answer the question as to whether the agency has specifically instructed banks not to provide services to crypto firms.

    “Recent reports indicate that Federal financial regulators have effectively weaponized their authorities over the last several months to purge legal digital asset entities and opportunities from the United States,” Emmer wrote.

    The representative cited the recent comments from former House Financial Services Committee chair Barney Frank, co-author of the Dodd-Frank Act, who said during an interview on Monday that the targeted nature of these regulatory efforts is meant to send the message that crypto is toxic and should be avoided.

    “If this is the case, these actions to weaponize recent instability in the banking sector, catalyzed by catastrophic government spending and unprecedented interest rate hikes, are deeply inappropriate and could lead to broader financial instability,” Emmer wrote.

    Emmer’s letter mentioned the joint statement released by the Fed, FDIC and the Office of the Comptroller of the Currency in January that discouraged banks from holding crypto or serving crypto clients, the Feds public statement issued in February that “seemingly turned this perspective into a final” without a public comment period and the Biden Administration’s “Roadmap to Mitigate Cryptocurrenices’s Risks” as further evidence of a coordinated effort to malign the industry.

    “In under a week, regulatory statement-driven market fear drove mass withdrawals at the few remaining banks that provide legal crypto firms access to financial services,” Emmer said. “The Administration’s demonstrated effort to choke off digital assets from the United States financial system is a lazy and destructive regulatory strategy that is stagnating innovation and subjecting American users of digital assets to less sophisticated regulatory jurisdictions.”

    Emmer added that while Congress is focused on working across the aisle to develop nonpartisan legislative solutions for the crypto community, “Reports indicate that this Administration may be driven by a political agenda that has already harmed everyday Americans.”

    The Congressman has called on the FDIC to officially answer whether it has instructed banks under its supervision to not provide crypto firms banking services, and if so, to explain the analysis for this instruction and “the goal of the instruction if not to discourage banks from servicing digital asset clients.”

    Emmer also wants the FDIC to indicate whether it has explicitly or implicitly communicated with any banks that “their supervision will be more onerous in any way if they take on new (or maintain existing) digital asset clients.”
    Emmer is calling on Gruenberg and the FDIC to answer these questions no later than 5:00 p.m. on March 24.

  5. #4
    Context for Rep. Emmer's letter:
    Signature Bank is on the market after being shuttered by state regulators on Sunday, but any potential buyer reportedly has to agree to a major caveat: no crypto.

    Reuters first reported the development on Wednesday evening, citing sources familiar with the matter.

    The New York-based bank’s weekend closure came two days after the collapse of another bank, the California-based Silicon Valley Bank (SVB), and less than a week after the closure of another California-based bank, Silvergate Bank. All three of the now-defunct banks were known as being crypto-friendly financial institutions.

    Signature Bank, whose crypto clients accounted for a quarter of its deposits, was reportedly under investigation by the Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) for potentially lax monitoring that may have enabled money laundering.

  6. #5
    Bold emphasis is mine:
    WASHINGTON – The Federal Deposit Insurance Corporation (FDIC) entered into a purchase and assumption agreement for substantially all deposits and certain loan portfolios of Signature Bridge Bank, National Association, by Flagstar Bank, National Association, Hicksville, New York, a wholly owned subsidiary of New York Community Bancorp, Inc., Westbury, New York.

    The 40 former branches of Signature Bank will operate under New York Community Bancorp's Flagstar Bank, N.A., on Monday, March 20, 2023. The branches will open during their normal business hours. Customers of Signature Bridge Bank, N.A., should continue to use their current branch until they receive notice from the assuming institution that full-service banking is available at branches of Flagstar Bank, N.A.

    Depositors of Signature Bridge Bank, N.A., other than depositors related to the digital banking business, will automatically become depositors of the assuming institution. All deposits assumed by Flagstar Bank, N.A., will continue to be insured by the FDIC up to the insurance limit. Flagstar Bank's bid did not include approximately $4 billion of deposits related to the former Signature Bank's digital banking business. The FDIC will provide these deposits directly to customers whose accounts are associated with the digital banking business. Questions may be directed to (866) 744-5463.

    FDIC has split off and debanked Signature's crypto clients. Operation Choke Point is in full effect.

  7. #6
    Barney Frank Was Right About Signature Bank

    The FDIC all but confirms it closed the bank over crypto.

    We never thought we’d write that headline. But on Sunday the Federal Deposit Insurance Corp. announced that New York Community Bancorp’s Flagstar Bank will assume all of Signature Bank’s cash deposits except for those of crypto companies. This confirms Mr. Frank’s suspicions—and ours—that Signature’s seizure was motivated by regulators’ hostility toward crypto.
    Last edited by Bern; 03-21-2023 at 05:35 AM.

  8. #7

  9. #8
    I had been thinking about ordering a Ledger Nano X for some time. With Coinbase now in the crosshairs of the Eye of Sauron, I finally got off my duff and ordered one. It arrived this morning and I spent some time getting it set up and transfering some crypto I owned on Coinbase over to it. It was pretty easy.

    If you were considering getting one, using that referral link to order should reward you with $10 of Bitcoin.

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  11. #9

    Sorry, I apparently can't figure out how to embed tweets.

    From the .PDF:
    Cooper & Kirk

    Operation Choke Point 2.0: The Federal Bank Regulators Come For Crypto
    Executive Summary

    Recent stories in the financial press have uncovered a coordinated campaign by prudential bank regulators to drive crypto businesses out of the financial system. Bank regulators have published informal guidance documents that single out cryptocurrency and cryptocurrency customers as a risk to the banking system. Businesses in the cryptocurrency marketplace are losing their bank accounts, or their access to the ACH network, suddenly, and with no explanation from their bankers. The owners and employees of cryptocurrency firms are even having their personal accounts closed without explanation. And over the past two weeks, federal regulators have shut down a solvent bank that was known to be serving the crypto industry and, although it is required to resolve banks through the “least cost resolution” to the Deposit Insurance Fund, the FDIC chose to shutter rather than sell the part of the bank that serves digital asset customers, costing the Fund billions of dollars.

    This pattern of events is not random, and we have seen it before. This is not the first time that federal bank regulators, working with their State-level counterparts, have abused their supervisory authority to label businesses unworthy of having a bank account and worked in secret to purge disfavored lines of commerce from the financial system. Beginning in 2012, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve System carried out a coordinated campaign to weaponize the banks against industries that had fallen out of favor with the administration—including gun stores, pawn shops, tobacco stores, payday lenders, and a host of other brick and mortar businesses. That campaign was called Operation Choke Point.

    Our firm successfully challenged Operation Choke Point, and it was brought to a halt. The current bout of regulatory overreach against the crypto industry is illegal for much the same as reason as its predecessor. Specifically:

    • Operation Choke Point 2.0 deprives business of their constitutional rights to due process in violation of the Fifth Amendment. It is well settled that when a federal agency attaches a derogatory label to an individual or business, and this stigmatizing label causes the business to lose a bank account or broadly precludes them from the pursuit of their chosen trade, the agency has violated the Due Process Clause of the Fifth Amendment, unless if first afforded the individual or business a right to be heard. This is precisely what the federal bank regulators responsible for Operation Choke Point 2.0 have done and continue to do by labeling crypto businesses a threat to the financial system, a source of fraud and misinformation, and a risk to bank liquidity.

    • Operation Choke Point 2.0 violates both the non-delegation doctrine and the anticommandeering doctrine, depriving Americans of key structural constitutional protections against the arbitrary exercise of governmental power.

    • By leveraging their authority over the banks to acquire the power to pick and choose the customers whom the banks may serve, the bank regulators have exceeded their statutory authority. The bank regulators are charged with supervising the safety and soundness of the banks; their effort to anoint themselves the gatekeepers of the financial system and the ultimate arbiters of American innovation and American economic life cannot be permitted to stand.

    • The federal bank regulators are also refusing to perform their non-discretionary duties when doing so will benefit the cryptocurrency industry. State banks that are statutorily entitled to access the federal reserve system are being denied their rights solely because they serve the crypto industry. The federal bank regulators are not free to pick and choose which statutory obligations they duties they wish to perform.

    • The federal bank regulators are evading the notice and comment rulemaking requirements of the administrative procedure act by imposing binding requirements on the banking industry through informal guidance documents. This is undemocratic, since it deprives the public of the right to comment on proposed rules, and it also runs contrary to the principle of judicial review, since courts lack the power to review “informal” agency actions.

    • Finally, the federal bank regulators are acting in an arbitrary and capricious fashion by failing to adequately explain their decisions, by failing to engage in reasoned decisionmaking, and by failing to treat like cases alike. It is difficult to imagine a more arbitrary and capricious agency action than simultaneously placing a solvent bank into receivership solely because it provided financial services to the crypto industry, while permitting insolvent institutions not tied to the crypto industry to continue operating.

    We therefore urge Congress to perform its oversight role and hold these agencies to account. In section IV of this paper, we propose a series of questions that need to be answered— and a series steps that Congress should take in an effort to obtain those answers.

    First, Congress should require the bank regulators to produce their communications with supervised financial institutions and state regulatory agencies regarding the denial or regulation of access to the financial system by crypto businesses and banks that serve the crypto industry.

    Second, Congress should require the federal bank regulatory agencies to explain the basis for their conclusion that the safety and soundness of the financial system require the insulation of the banks from blockchain technology, from customers who operate in the crypto space, and from state-chartered depository institutions that are currently serving those customers.

    Third, Congress should make clear to the federal bank regulators, and all federal agencies, that the notice and comment rulemaking requirements of the Administrative Procedure Act are not optional. The requirements imposed by the APA are not obstacles to be evaded by the use of informal guidance documents.

    Fourth, Congress should investigate the role of federal regulators in the decision by the New York Department of Financial Supervision’s decision to shutter Signature Bank. Congress should also determine the FDIC’s role in excluding bidders who wished to acquire Signature’s digital asset businesses from the bidding process.

    Fifth, Congress should investigate whether bank regulators are acting to squelch private sector innovation in order to clear the field of competition for the benefit of existing federally regulated banks or for a federal cryptocurrency alternative. The persistent unwillingness of the nation’s bank regulators to follow the law and obey the Constitution calls out for Congressional action. Cracks are starting to form in the American financial system as its regulators increasingly abuse their power to achieve aims outside their authority and beyond their competence.

  12. #10
    I still haven't figured out how to embed tweets here...

    Link to WSJ OpEd on the subject in the tweet.

  13. #11
    Quote Originally Posted by Bern View Post
    I still haven't figured out how to embed tweets here...

    Link to WSJ OpEd on the subject in the tweet.

    I paste the full URL for those who might not be able to view embedded tweets, then I make a couple new lines above the link. Then you put the tweet tags like this with no spaces [ t w e e t ] [ / t w e e t ]. Then copy the numbers at the end of the tweet and paste special (as text) between the tags. After I click "Post" the embedded tweet doesn't show up on my browser, but when I refresh the page it shows up.
    "He's talkin' to his gut like it's a person!!" -me
    "dumpster diving isn't professional." - angelatc
    "You don't need a medical degree to spot obvious bullshit, that's actually a separate skill." -Scott Adams
    "When you are divided, and angry, and controlled, you target those 'different' from you, not those responsible [controllers]" -Q

    "Each of us must choose which course of action we should take: education, conventional political action, or even peaceful civil disobedience to bring about necessary changes. But let it not be said that we did nothing." - Ron Paul

    "Paul said "the wave of the future" is a coalition of anti-authoritarian progressive Democrats and libertarian Republicans in Congress opposed to domestic surveillance, opposed to starting new wars and in favor of ending the so-called War on Drugs."

  14. #12
    Ok. I did every step except refresh the browser. Thanks.

  15. #13
    What are they afraid of?

    The Bitcoin Logo being projected onto the European Central Bank in Frankfurt, Germany

    "He's talkin' to his gut like it's a person!!" -me
    "dumpster diving isn't professional." - angelatc
    "You don't need a medical degree to spot obvious bullshit, that's actually a separate skill." -Scott Adams
    "When you are divided, and angry, and controlled, you target those 'different' from you, not those responsible [controllers]" -Q

    "Each of us must choose which course of action we should take: education, conventional political action, or even peaceful civil disobedience to bring about necessary changes. But let it not be said that we did nothing." - Ron Paul

    "Paul said "the wave of the future" is a coalition of anti-authoritarian progressive Democrats and libertarian Republicans in Congress opposed to domestic surveillance, opposed to starting new wars and in favor of ending the so-called War on Drugs."

  16. #14
    SEC Commissioner dissents on their attempts to stifle crypto innovation:
    No longer does this Commission think creatively about regulatory alternatives that advance the Commission’s mission while preserving space for potentially disruptive innovation. No longer does this Commission worry that regulatory bullheadedness often produces absurd consequences.
    More (long):

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