A former United States government official has accused federal regulators of targeting the cryptocurrency industry through a campaign of “debanking.”
Donald Verrilli, who served as the solicitor general of the United States from 2011 to 2016, raised these claims in a recent amicus brief, where he represented the Blockchain Association in support of Custodia Bank’s appeal to the U.S. Tenth Circuit Court of Appeals.
Custodia Bank had applied for a master account in October 2020 and subsequently filed a lawsuit against the Federal Reserve in June 2022, alleging an “unlawful delay” in processing its application.
However, the Fed rejected Custodia’s request in 2023, citing the bank’s connections to the cryptocurrency space.
A judge upheld the Fed’s decision in March 2024, denying Custodia the opportunity to have its application reviewed.
Custodia Caught in Efforts to Debank Crypto Market
Verrilli’s filing asserted that Custodia’s application was caught up in the regulators’ aggressive and coordinated efforts to “debank” the digital asset industry.
He referred to statements made by the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency in January 2023, which claimed that cryptocurrencies were likely inconsistent with safe and sound banking practices.
The Fed’s rejection of Custodia’s application followed these coordinated statements from the federal regulators.
Verrilli argued that Custodia had become the target of federal banking regulators’ campaign to isolate the digital asset industry from the broader national economy, despite having no fault of its own.
Other parties, including former U.S. Senator Pat Toomey, Wyoming Secretary of State Chuck Gray, and members of the U.S. Senate Banking Committee and U.S. House Financial Services Committee, have also filed similar briefs supporting Custodia’s appeal.
Paul Clement, another former U.S. Solicitor General, filed a brief on behalf of the Digital Chamber and Global Blockchain Business Council, stating that Custodia had fallen out of favor with federal regulators.
The decision on Custodia’s appeal is pending, and it remains to be seen when the appellate court will issue its ruling.
The judges may also take into account a Supreme Court opinion from June 28 that overturned the Chevron doctrine, which required courts to defer to federal agencies’ interpretation of the law.
This opinion could potentially be relevant to the Federal Reserve’s decision on Custodia’s master account application.
House to Reconsider Resolution Regarding SEC Accounting Rule
In a related development, the U.S. House of Representatives is set to reconsider a resolution on July 10 to overturn an accounting rule imposed by the Securities and Exchange Commission, which has hindered banks from handling cryptocurrencies.
The resolution had previously passed in both the House and Senate, but President Joe Biden vetoed it in May.
The House now has the opportunity to override the veto with a two-thirds majority vote.
On a positive note for the crypto industry, the US House of Representatives recently passed the Financial Innovation and Technology for the 21st Century Act (FIT21).
The bill aims to establish regulatory frameworks for digital asset markets. It received bipartisan support, securing a 279-136 vote. The FIT21 bill intends to create a regulatory regime for US crypto markets, providing further clarity and structure to the industry.
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