Key takeaways
- Custodia Bank has laid off nine employees due to financial pressures and ongoing legal battles.
- The bank’s challenges are exacerbated by the Biden administration’s strict regulations on the crypto sector.
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Custodia Bank, a crypto-friendly bank founded by Wall Street veteran Caitlin Long, has cut its workforce from 36 to 27 employees as part of the bank’s efforts to preserve capital while seeking to resolve its legal and operational hurdles with the Federal Reserve, FOX Business reported Thursday.
Long said that “Operation Chokepoint 2.0,” a program seen as a regulatory crackdown by the Biden administration on the crypto industry by the community, “has been devastating” to law-abiding U.S. crypto businesses like Custodia Bank.
Despite Custodia’s strong track record in risk management and compliance, the bank is struggling to overcome these regulatory challenges.
Custodia is currently engaged in a legal battle with the Federal Reserve (Fed) over its application for a master account, which is required to access the Fed’s payment systems. Without the account, Custodia faces higher operational costs because it must rely on other banks with such access.
“We are right-sizing our workforce so that we can maintain our operations while preserving our capital until the completion of Operation Choke Point 2.0 or until our lawsuit against the Fed is successfully concluded,” Long said.
The cuts come as the banking industry as a whole remains wary of its dealings with crypto firms, influenced by federal warnings about the risks associated with digital assets.
According to Custody, two of its partner institutions have ended their relationships with the bank due to its association with crypto.
The term “Choke Point 2.0” is often described as a renewed effort by a number of U.S. regulators, 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 crypto industry.
It is believed that this initiative has effectively discouraged these companies from operating within the traditional financial system.
Tyler Winklevoss, co-founder of cryptocurrency exchange Gemini, has previously spoken out about the implications of Operation Choke Point 2.0, particularly in light of the Fed’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 Fed confirmed that Operation Choke Point 2.0 is still active, provided valuable insight into how it works, and verified that Harris’ crypto “reset” was a scam. The Fed revealed all of this in a 13-page enforcement action it issued this morning against… pic.twitter.com/zhLRRWAH0E
— Tyler Winklevoss (@tyler) August 9, 2024
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