On January 3, the Federal Deposit Insurance Corporation (FDIC) issued another round of documents in response to Freedom of Information Act (FOIA) requests made by the company that hired him Coinbase (NASDAQ: COIN) exchange.
The documents are basically the same letters published in Decemberbut with fewer redactions. The reissue followed a ruling by U.S. District Court Judge Ana Reyes that the original redactions showed a “lack of good faith efforts” by the FDIC.
Coinbase executives, including Chief Legal Officer Paul Grewal, criticized the FDIC’s initial redactions, even as they celebrated what they claimed was proof that Choke Point 2.0 “isn’t just some crypto conspiracy theory.” However, the redacted documents did show that the FDIC had asked banks to “refrain from providing” crypto-related services/products that had not yet been fully vetted by regulators.
The new, less redacted documents do not offer any more definitive evidence that the FDIC ordered or even warned banks not to maintain accounts or facilitate transactions with crypto operators. Some of these operators have strongly suggested that they have lost all access to banking services due to the direct intervention of federal regulators.
Again, the reality is far different. The FDIC only ordered the unidentified banks to halt plans to offer blockchain-based products/services to cryptocurrency customers until the banks provide the FDIC with more information about those products/services so the regulator can determine whether the risks are acceptable.
Additional details revealed by less incriminating redactions include a March 2022 letter in which the FDIC expresses concern about an unspecified New York bank’s plans for a “Bank Digital Deposit” product. The letter notes that the product “would only facilitate transactions between qualified (REDACTED) commercial customers of the bank.”
However, the FDIC notes that the product “will run on (REDACTED), a decentralized public blockchain, rather than (REDACTED), a private, permissioned blockchain.” The FDIC had questions that the bank had to “satisfactorily address” to ensure that “this new activity is being conducted in a safe and sound manner.”
Other newly disclosed information includes a bank in Texas that wanted to “offer bank customers access to (BTC) and Ethereum via the bank’s mobile application.” Other documents mention “buying and selling (BTC)” through mobile apps and websites in connection with unknown trading platforms and technology providers.
The letter from the FDIC’s San Francisco office called for due diligence on all vendors associated with the bank’s digital banking division, as well as those that assist in “customer due diligence, custodial services, exchange services, funds flow and all other services related to” digital obs. The same bank has faced questions about a “digital asset lending program.”
The Missouri bank was asked about plans to offer “a cash rewards debit card that (REDACTED) pays out in (BTC).” In the same letter, he asks about the credit extended by the bank in November 2021, which was “secured by (BTC) and contains a 50% required margin, which is updated daily.”
Circulation of wagons
There are two letters in the latest edition that were not included in the original bundle. Their content is largely similar to the others, although on March 13, 2023, one New York bank warned the FDIC of its plans to provide a bank account to an unspecified customer “for the purpose of holding deposit reserves equivalent to (REDACTED) stablecoin issuance.”
For what it’s worth, three banks with “crypto” ties failed in March 2023: Silvergate Bank, Signature bank and Silicon Valley Bank (SVB). The latter was the custodian of $3.3 billion worth of cash reserves backing the USDC at the time of the collapse. stable coin released circle (in partnership with Coinbase).
SVB collapsed on March 10, three days before the unnamed bank contacted the FDIC about the stable reserve proposal. So, was Circle a stablecoin issuer in New York State? For the record, Circle’s ass was eventually pulled out of the fire by none other than the FDIC, which bailed out the company for $3.3 billion.
Everything was raging and blowing nowhere
The FDIC also issued an internal memo to its regional directors in June 2022 titled Procedures for Reviewing Notices of Participation in Crypto-Related Activities.
The memorandum explains why greater scrutiny is required from a bank that wants to directly engage in ‘crypto’ activity compared to those that simply want to offer conventional banking services to crypto customers. It doesn’t matter, given the 180° turn the president-elect has made Donald Trump’s new federal regulators will soon introduce control over cryptocurrencies.
If Coinbase et al. The FDIC has some real bone, that is with the original redactions of the letters by the FDIC, which apparently didn’t really hide anything of real significance, but apparently fueled the crypto brethren’s eager anticipation of regulatory smoking guns. Now it’s just a mix sad trombone and the smallest violin in the world playing only for guys who believed their performance should be exempt from regulatory scrutiny.
Regardless, their thirst for martyrdom is insatiable, so call the histrionics about the FDIC dealing with “unconstitutional and illegal” activity and “covering up evidence that (the FDIC) was trying to kill” crypto operators. Congressional hearings were requested so that the public could taste this zero burger.
Enter John Deaton, the crypto-friendly attorney last seen mounting a failed campaign to unseat anti-crypto Sen. Elizabeth Warren (D-MA). Deaton, a former federal prosecutor, tweeted his willingness to “assist in the conduct of the federal investigation into ChokePoint 2.0” and to do so pro bono. Deaton said it would be an honor and a privilege to help “uncover the multi-agency coordination and potential corruption associated with ChokePoint 2.0.”
Barr-bye
Monday brought the news that Michael Barr, vice chairman of the Federal Reserve Board’s oversight committee — essentially the Fed’s top police officer overseeing financial firms — was out. resign from this role with effect from February 28. Barr, who will continue as a board member, was intended for early termination Trump on suspicion that he might oppose Republican plans to overhaul banking regulations.
In March 2023, Barr criticized crypto operators after the collapse of Silvergate Bank, of which they were also former clients Sam Bankman-Fried’s market maker Alameda Research. Highlighting the concerns expressed in the FDIC’s letters, Alameda served as transit front for US customers wish to make deposits with SBF based in the Bahamas FTX crypto exchange.
Barr gave a speech at the time discussing the “recent turmoil in the crypto sector” in which he appeared to take a shot at Circle’s SVB crash. Regarding the stablecoins, Barr said the “operational risks are quite high” due to the inability to immediately monetize the reserve funds that cover the value of their issued tokens. “This mismatch in value and liquidity is a recipe for a classic bank run.”
Barr substitutions
Candidates to replace Barr as supervisor are limited to current Fed governors, including Michelle Bowman, the former commissioner of the Kansas State Bank. October 2023 is Bowman had a speech expresses concern about stablecoins, calling them “less secure, less stable and less regulated than traditional forms of money.”
Bowman believed in “private sector innovation within established guardrails” in which “the same activities that present the same risks are subject to the same regulations—no matter what the product is called or who offers it.”
Bowman too expressed doubts on the benefits of issuing a federal government a central bank digital currency (CBDC) in celebration of the Govt FedNow 24/7 interbank payment system.
Another candidate is Fed Governor Christopher Waller, a former executive vice president at the Federal Reserve Bank of St. Louis. Waller has put positively on the topics of stablecoins and named decentralized finance (DeFi) tools that “largely complement centralized finance”. In November Waller said the government should allow the private sector to focus on the development of payment processing.
However, in 2023, Waller expressed doubts about security of so-called “crypto assets,” saying they are “risky and many of the companies involved in them are in their infancy.” Waller said he had no problem if people wanted to take risks by speculating on these ‘assets’, but warned speculators not to expect “taxpayers to socialize your losses.”
Waller also noted that “banks considering engaging in crypto-related activities face the critical task of meeting ‘know your customer’ and ‘anti-money laundering’ requirements that cannot be ignored.”
New sheriffs in town
Senator Tim Scott (R-SC), who will lead the Senate Banking Committee in the new Congress, was not shy about slamming the door on Barr’s back as he headed for the exit. was released by Scott statement accused Barr of “failing to live up to the responsibilities of his position” and cited a number of his failings, including “supervisory failures” during the Silvergate, Signature and SVB implosions in 2023.
Scott’s colleague in the House of Representatives will Rep. French Hill (R-AR), who since retired Rep. He succeeds Patrick McHenry (R-NC) as chairman of the Financial Services Committee. Hill issued his own statement said he was “pleased to learn” of Barr’s plans to step down, adding that he hoped Trump would choose a replacement “committed to adjusting bank regulatory policies and taking a balanced approach to prudential supervision.”
Politics recently published a profile of Hill detailing his role as “a leading advocate for policies that help advance emerging technology sectors, including cryptocurrencies and artificial intelligence.” However, as the article notes, Hill’s “biggest legislative focus in the past two years has been on crypto.”
As such, it’s no surprise that Hill’s list of campaign contributors reads like a who’s who of the crypto fraternity, including the CEO of Coinbase Brian Armstrongventure capitalist Marc Andreessen, Salt flats co-founders Anatoly Jakovenko and Raj Gokal, Multicoin Capital co-founder Kyle Samani and many other important figures.
The holidays may be over, but sing with me: It’s starting to look a lot like crypto…
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