U.S. Regulators Limit Bank Operations with Crypto Firms

U.S. banking regulators are implementing new limits on financial institutions that cater to the cryptocurrency sector. This decision comes in the wake of several significant bankruptcies in March, prompting officials to hold digital currencies responsible for these financial setbacks.

How Do Restrictions Affect Crypto Companies?

The Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) have mandated that banks cap deposits from cryptocurrency firms at 15% of their overall deposits, aiming to mitigate risk. Regulators are particularly wary of real-time payment systems preferred by crypto businesses, which operate continuously beyond standard banking hours.

Elaine Hetrick, a representative of Silvergate Bank, noted that the institution opted to shut down operations due to increased pressures following the collapse of FTX. Other banks, such as Customers Bank, Cross River Bank, and Western Alliance Bank, are facing similar regulatory challenges.

Are Legal Grounds for Restrictions Solid?

Legal experts from the Cooper & Kirk law firm argue that the ongoing restrictions lack a solid legal basis, stating, “Limiting crypto deposits may violate the principle of due process in the Constitution.” While some attorneys believe regulators are overstepping, others assert that banks are merely following risk management protocols.

• Regulators aim to prevent banks from reliance on specific sectors.
• The crypto industry has dubbed this initiative “Operation Choke Point 2.0.”
• Regulatory pressure complicates financial access for cryptocurrency firms.

While regulators focus on ensuring banks maintain diverse deposit portfolios, these new restrictions are limiting their capacity to support cryptocurrency enterprises effectively.