Key points
- Custodia Bank has laid off nine employees due to financial pressures and ongoing legal battles.
- The bank’s challenges are compounded by the Biden administration’s strict regulations on the cryptocurrency industry.
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Custodia Bank, a crypto-friendly bank founded by Wall Street veteran Caitlin Long, has reduced its workforce from 36 to 27 employees as part of the bank’s efforts to preserve capital while it seeks to resolve its legal and operational hurdles with the Federal Reserve, as reported by FOX Business on Thursday.
Long said that “Operation Chokepoint 2.0,” a program perceived by the community as a regulatory crackdown by the Biden administration on the cryptocurrency industry, “has been devastating” for law-abiding U.S. cryptocurrency companies like Custodia Bank.
Despite Custodia’s strong track record in risk management and compliance, the bank has been struggling to overcome these regulatory challenges.
Custodia is currently involved in a legal battle with the Federal Reserve (Fed) related to its request for a master account, which is essential to access the Fed’s payment systems. Without this account, Custodia faces higher operating costs as it must rely on other banks for such access.
“We are right-sizing to maintain operations while preserving capital until Operation Choke Point 2.0 is complete or our Federal Reserve lawsuit is successfully resolved,” Long said.
The cuts come at a time when the banking sector at large remains cautious about engaging with cryptocurrency firms, influenced by federal warnings about the risks associated with digital assets.
According to Custody, two of its partner institutions have terminated their relationships with the bank due to its association with cryptocurrencies.
The term “Choke Point 2.0” is often described as a renewed effort by several U.S. regulatory bodies, including the Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), to restrict access to banking services for the cryptocurrency industry.
The initiative is believed to have effectively deterred these companies from operating within the traditional financial system.
Tyler Winklevoss, co-founder of cryptocurrency exchange Gemini, has already spoken out about the implications of Operation Choke Point 2.0, particularly in light of the Federal Reserve’s recent actions against Customers Bank.
He also warned that the regulatory environment for cryptocurrencies could become even stricter if Vice President Kamala Harris wins the presidency.
Today, the Federal Reserve confirmed that Operation Choke Point 2.0 is still in full swing, provided valuable insight into how it works, and verified that Harris’ cryptocurrency “reset” is a scam. The Fed revealed all of this in a 13-page enforcement action it issued this morning against… image.twitter.com/zhLRRWAH0E
—Tyler Winklevoss (@tyler) August 9, 2024
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