The End of Crypto’s ‘Choke Point’
Team Biden’s debanking of digital-asset firms gives way to Trump’s embrace of a crucial new industry.
By Mike Lempres
Illustration: Martin KozlowskiWashington is entering a new era.
The federal government is finally changing course after four years of vilifying cryptocurrencies and using legally dubious policies to force companies to bend to its will.
The Trump administration and the Republican-controlled Congress are embracing digital assets and taking steps to ensure the U.S. is a leader in unleashing crypto innovations that could bolster our financial system and global competitiveness.
By contrast, the Biden administration’s scorched-earth tactics made the U.S. a laggard in a crucial emerging industry.
The change is illustrated by Federal Reserve Chairman Jerome Powell.
Under his leadership Fed regulators effectively prohibited banks from serving digital-asset companies.
But now Mr. Powell says the Fed supports innovation.
He recently disputed that the central bank takes actions “that would cause banks to terminate customers who are perfectly legal just because of excess risk aversion maybe related to regulation and supervision.”
But debanking did happen, and we must understand how and why to make sure it doesn’t happen again.
President Trump took an important step last month when he issued an executive order prohibiting any future “Operation Choke Point” activities—which is how regulators under President Biden forced banks to deny services to digital-asset firms.
Congress will continue the effort this week when the Senate Banking Committee and House Financial Services Committee hold hearings to investigate the debanking that took place during the last administration.
As chairman of Silvergate Bank, I experienced debanking and its consequences.
Typically, regulators will require banks to drop individual customers.
In the case of Silvergate, the bank was effectively prohibited from carrying out its business model of serving digital-asset companies.
For 10 years, Silvergate followed that model under the review of its regulators.
After a decade of growth, innovation and compliant operations, regulators expressed concern about banks’ concentration in serving the crypto industry and took steps that hamstrung banks’ abilities to serve crypto customers.
These actions ultimately killed Silvergate, forcing it to wind down and leaving nearly 1,700 fully compliant digital-asset companies scrambling for banking relationships that would keep them in business.
Silvergate wasn’t alone. Signature Bank also fell victim to the government’s anticrypto crusade.
Former House Financial Services Chairman Barney Frank, a Signature board member, has said that regulators seized the bank in the spring of 2023 to “send a very strong anticrypto message.”
The Federal Deposit Insurance Corp. orchestrated a deal where a New York Community Bancorp subsidiary took on all of Signature’s deposits—except $4 billion that was held by crypto companies.
Simply put, digital assets were under attack.
This regulator-led onslaught hit Silvergate in early 2023 and followed the collapse of cryptocurrency exchange FTX.
Silvergate was a double victim of the FTX fraud.
As the Justice Department has said, FTX engaged in lies and deception to open Silvergate accounts.
Then, FTX’s demise set off a crisis of confidence in digital assets that put significant strain on Silvergate, its customers and the entire cryptocurrency industry.
But Silvergate successfully handled this “run on the bank” and returned nearly $10 billion to depositors.
The bank weathered the storm, stabilized and was prepared to keep supporting the digital-asset industry.
Regulators made that impossible.
As Silvergate put it in September bankruptcy filings, “increased supervisory pressure on Silvergate and other banks focused on servicing crypto-asset businesses forced Silvergate Bank to a point where it would have needed to remake its business model.”
In the same document, the bank described a “shift in regulatory approach that made Silvergate’s business model untenable.”
It has been reported that regulators demanded Silvergate and other banks cap crypto deposits at 15% of total deposits.
I can’t disclose confidential supervisory communications between Silvergate and its regulators.
But I can confirm that 99% of Silvergate’s deposits were tied to digital-asset companies and that the shift in regulatory posture forced us to make the difficult decision to wind down.
Notably, Silvergate and other banks had no opportunity to contest regulators’ actions because the crypto crackdown wasn’t done through the formal rulemaking process that allows for public comment.
Instead, the crackdown was largely hidden from the public and crypto firms.
But regulators still weren’t done with Silvergate.
Following a predictable round of performance politics by the likes of Sen. Elizabeth Warren, the bank was fined $63 million last year by the Fed, the Securities and Exchange Commission and California’s banking regulator over alleged deficiencies in its transaction monitoring.
Despite the struggles faced by other crypto-friendly banks, Silvergate didn’t fail.
It voluntarily liquidated in a manner that protected depositors.
Our priority throughout was preserving value for Silvergate customers and shareholders.
I’m proud to say that’s what we did.
As of November 2023, Silvergate had fully repaid all deposits to our customers.
The nation needs more banks like Silvergate.
I am confident that Mr. Trump’s stance toward cryptocurrencies and his focus on rooting out debanking practices will allow banks to provide financial services to well-run companies that expand the economy and create jobs.
Those objectives were undermined over the past four years by an overreaching government that stifled innovation and punished success.
It’s past time for a reset.
Mr. Lempres was chairman of Silvergate Bank.
0 comments:
Publicar un comentario