Coinbase Chief Legal Officer Paul Grewal has made public letters from the Federal Deposit Insurance Corporation (FDIC) to banks throughout 2022, urging them to halt or avoid crypto-related activities.
The letters, dated March 11, 2022, are referred to as “pause letters” due to their repeated recommendations to suspend or refrain from crypto services.
FDIC concerns
The FDIC letters cited several 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 determined what, if any, regulatory requirements will be required for a bank to engage in this type of activity.”
Many parts of the documents are heavily redacted, possibly 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 were operating “in a safe and sound manner.”
The letters further examined the legal analysis conducted by banks regarding the permissibility of such activities under Part 362 of the FDIC Rules and Regulations, which applies to insured state-owned banks. This suggests that some state-chartered banks have explored offering crypto-related services in 2022.
Operation Chokepoint 2.0
The release of these documents follows Coinbase’s October 18 Freedom of Information Act (FOIA) request seeking clarity on an alleged 15% deposit limit imposed on crypto-friendly banks.
Grewal argued that the letters provide evidence of “Operation Chokepoint 2.0,” an alleged attempt by the Biden administration to suppress the crypto industry. He emphasized that the claims were not a conspiracy theory and criticized the FDIC for withholding important information through redactions and releasing only a fraction of the relevant documents.
He called on the new US administration to reverse what he described as “politically motivated regulatory decisions.”
According to Grewal:
“The new administration has the opportunity to reverse so many bad crypto policy decisions, the most significant of which are politically motivated regulatory decisions such as Operation Chokepoint 2.0.”
Meanwhile, others in the industry have criticized the letters and raised further concerns about the Federal Reserve’s involvement, which is being copied in 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 break letters were coordinated decisions. She also characterized the so-called pause letters as open-ended guidelines intended to discourage legal crypto activity.
She said:
“These were not ‘break letters’ because the break was indefinite. These were actually ‘cease & desist’ letters, cloaked in legal language… designed to crush the law-abiding #crypto.”
The pause letters, which span nearly two years and nine months, indicate a coordinated effort by 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 U.S. financial system.