FDIC’s ‘pause letters’ reveal Operation Choke Point 2.0 tactics against crypto banking

Coinbase’s Chief Legal Officer (CLO), Paul Grewal, has called out the Federal Deposit Insurance Corporation (FDIC) for continuing an anti-crypto agenda. Grewal took to X to accuse the regulator of actively impeding banks that had expressed interest in pursuing crypto from doing so.

He said the exchange was privy to correspondences in which the watchdog urged banks to delay venturing into or steer clear of crypto-related activities. Grewal added that Coinbase had come into the information after it sued the FDIC for compliance with the exchange’s Freedom of Information Act (FOIA) request.

In that request, the crypto trading platform had sought clarity on the pause letters the federal agency sent banks as part of its Operation Choke Point 2.0 initiative. Grewal described the letters’ contents as a shameful example of the FDIC’s attempt to block legitimate American companies from accessing finances.

He wrote:

Slowly but surely, the picture is becoming clear. After we sued, @FDICgov finally started giving us information related to our FOIA request about the pause letters it sent to financial institutions as part of Operation Chokepoint 2.0. In short, the contents are a shameful example…

— paulgrewal.eth (@iampaulgrewal) November 1, 2024

The FDIC had expressed fears over crypto projects 

The FDIC letters show an agency keen on dissuading certain financial institutions from entering the crypto business. For instance, Eric T. Guyot, the body’s Assistant Regional Director, advised one bank to “pause all crypto asset-related activity ” on March 11, 2022. That delay, he suggested, would allow the agency to assess the proposed crypto product’s safety and soundness. 

Likewise, on March 25, 2022, Jessica A. Kaemingk, an acting FDIC Regional Director, urged another bank’s board to rethink its proposed crypto-asset product. She voiced concerns about the program’s “safety and soundness” while requesting additional papers to confirm compliance.

On April 22, 2022, the FDIC requested a third lender to shelve an active digital assets service. The watchdog argued that it needed that pause to clarify the service’s compliance and risk management before allowing its expansion. 

Coinbase is pushing for clarity on crypto

Grewal concluded his X post by avowing that Coinbase will continue pushing for clarity on regulations guiding crypto investments. He insisted that the public required openness, something the FDIC wasn’t helping achieve by shrouding itself in bureaucracy. 

Coinbase’s FOIA request to the FDIC is the latest of its different pushes for the US government’s stance on regulating digital assets. It comes hot on the heels of a lawsuit the firm has instituted against the Securities and Exchange Commission (SEC) in Washington for ignoring similar applications. 

The crypto trading platform is also embroiled in another legal tussle with the SEC in the Philadelphia Appeals Court. In this suit, Coinbase wants the SEC to provide explicit rules for managing crypto. Should the exchange succeed in that endeavor, it will have saved the crypto industry from one of its major hurdles: the absence of regulatory clarity.