Coinbase chief legal officer Paul Grewal has disclosed letters from the Federal Deposit Insurance Corporation (FDIC) to banks throughout 2022, urging them to halt or avoid crypto-related activities.
The letters, which date back to March 11, 2022, have been dubbed “pause letters” due to their repeated recommendations to suspend or refrain from engaging in crypto services.
FDIC concerns
The FDIC letters cited various concerns, including the agency’s lack of clarity on regulatory requirements for crypto-related activities. One excerpt noted:
“At this time, the FDIC has not yet determined what, if any, regulatory fillings will be necessary for a bank to engage in this type of activity.”
Many sections of the documents were heavily redacted, potentially to protect the proprietary nature of the services or products discussed. The FDIC also emphasized the need for additional information about the banks’ crypto offerings to ensure they would operate “in a safe and sound manner.”
The letters further scrutinized the legal analysis conducted by banks regarding the permissibility of such activities under Part 362 of the FDIC Rules and Regulations, which governs insured state banks. This suggests that some state-chartered banks explored offering crypto-related services in 2022.
Operation Chokepoint 2.0
The release of these documents stems from Coinbase’s Freedom of Information Act (FOIA) request filed on Oct. 18, which sought clarity on an alleged 15% deposit cap imposed on crypto-friendly banks.
Grewal argued that the letters provide evidence of “Operation Chokepoint 2.0,” a purported effort by the Biden administration to stifle the crypto industry. He emphasized that the claims were not a conspiracy theory and criticized the FDIC for withholding significant information through redactions and releasing only a fraction of the relevant documents.
He called for the incoming US administration to reverse what he described as “politically motivated regulatory decisions.”
According to Grewal:
“The incoming administration has the opportunity to reverse so many poor crypto policy decisions, chief among them politically motivated regulatory decisions like Operation Chokepoint 2.0.”
Meanwhile, others in the industry also criticized the letters and raised further concerns about the involvement of the Federal Reserve, which is copied on many of the letters sent to banks.
Caitlin Long, CEO and founder of Custodia Bank, said the Fed’s mention in the letters is evidence that the pause letters were coordinated decisions. She also characterized the so-called pause letters as indefinite directives meant to discourage lawful crypto activities.
She said:
“These weren’t ‘pause letters’ bc the pause was indefinite. These were really ‘cease & desist’ letters cloaked in legalese…designed to crush law-abiding #crypto.”
The pause letters, spanning nearly two years and nine months, suggest a coordinated effort among regulators to limit banks’ participation in cryptocurrency-related activities. Critics argue that such measures undermine the industry’s ability to innovate and expand within the US financial system.
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