The bank has struggled with stringent federal crypto regulations.
Photo: Manuel Stagars / Harvard Law Today
Key Takeaways
- Custodia Bank has laid off nine employees due to financial pressures and ongoing legal battles.
- The bank's challenges are exacerbated by the Biden administration's strict regulations on the crypto industry.
Custodia Bank, a crypto-friendly bank founded by Wall Street veteran Caitlin Long, has scaled its workforce down from 36 to 27 employees as part of the bank’s efforts to preserve capital while seeking to resolve its legal and operational hurdles with the Federal Reserve, as reported by FOX Business on Thursday.
Long said “Operation Chokepoint 2.0,” a program perceived as the Biden administration’s regulatory crackdown on the crypto industry by the community, “has been devastating” for law-abiding US crypto businesses like Custodia Bank.
Despite Custodia’s strong track record in risk management and compliance, the bank has been struggling to overcome these regulatory challenges.
Custodia is currently engaged in a legal battle with the Federal Reserve (Fed) related to its application for a master account, which is essential for accessing the Fed’s payment systems. Without this account, Custodia faces higher operational costs, as it must rely on other banks with such access.
“We are right-sizing so we can maintain operations while preserving capital until after Operation Choke Point 2.0 ends or our Fed lawsuit concludes successfully,” Long explained.
The cuts come as the broader banking sector remains wary of engaging with crypto firms, influenced by federal warnings about the risks associated with digital assets.
According to Custody, two of its partner institutions have ended relationships with the bank due to its association with crypto.
The term “Choke Point 2.0” is often described as a renewed effort by a number of US regulatory bodies, including the Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), to restrict access to banking services for the crypto industry.
The initiative is believed to have effectively discouraged these firms from operating within the traditional financial system.
Tyler Winklevoss, co-founder of the crypto exchange Gemini, was previously vocal about the implications of Operation Choke Point 2.0, particularly in light of the Fed’s recent actions against Customers Bank.
He also warned that the regulatory environment for crypto could become even more stringent if Vice President Kamala Harris wins the presidency.
Today, the Fed confirmed that Operation Choke Point 2.0 remains in full swing, provided valuable insight into how it works, and verified that the Harris crypto "reset" is a scam. The Fed revealed all of this in a 13-page enforcement action it issued this morning against… pic.twitter.com/zhLRRWAH0E
— Tyler Winklevoss (@tyler) August 9, 2024
