The Biden administration’s regulatory approach towards crypto-assets has led to considerable restructuring at a relatively small, yet somewhat prominent digital assets bank.
FOX Business has revealed that Custodia Bank, a Wyoming based financial institution that provides various banking services to crypto firms, said Thursday that it plans to lay off 9 of its 36 staff members in order to conserve resources as it deals with the country’s central bank via court proceedings.
The recently announced layoffs have been revealed as Custodia is involved in a court case with the Federal Reserve in an effort to gain access to a master account which provides state-chartered financial institutions access to the Fed’s liquidity facilities. This reportedly includes payment services. If a service provider cannot use a master account, then they have to do work via other institutions that do have master accounts, which usually comes with considerable costs.
It’s worth noting that banking regulators have been warning banks about working with crypto companies because the relatively risky side of the digital assets business like price volatility and absence of proper regulation at the federal level in the United States.
Custodia is currently a fairly small, state-chartered bank, however, it serves a key role for firms that have not been able to access banking services from other providers.
Custodia management said the reduction on what they refer to as the federal government’s “Operation Chokepoint 2.0” – a phrase that’s gained widespread use in the crypto space for what they view as an intentional move by the Biden administration to deny the industry from accessing the broader banking system. The term seems to be a variation of an Obama-era movement called “Operation Choke Point,” where banking access was “choked off” from sectors thought to be “high-risk,” like predatory payday lenders.
Custodia founder and CEO Caitlin Long stated:
“Operation Choke Point 2.0 has been devastating for the law-abiding U.S. crypto industry, and Custodia Bank has been hit hard despite our strong risk management and compliance track record. 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 did not share details on the actual impact on company operations, but said that the firm may continue as usual and the latest developments may not affect Custodia’s suit.
Regulators like Deputy Treasury Secretary Wally Adeyemo stated that there is no so-called effort by the government to deny the crypto industry from accessing the financial system. But industry professionals have shared on social media their experiences with banks ending their accounts due to their dealings with crypto.
Custodia told FOX Business that some of its partner institutions ended their relationships with the bank due to such reasons.
Custodia bank’s layoffs come right before a key election that may determine the fate of the crypto sector. Ex- President Trump, who has notably embraced the crypto sector, will go up against Vice President Kamala Harris in November. She has not issued clear statements regarding her approach towards crypto.