Former US solicitor general claims regulators want to ‘debank’ crypto

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Donald Verrilli, who served as the solicitor general of the United States from 2011 to 2016, has claimed in an appellate filing that federal regulators were engaged in “aggressive, coordinated efforts to ‘debank’ the digital asset industry.”

In a July 3 amicus brief with the U.S. Tenth Circuit Court of Appeals. Verrilli represented the Blockchain Association in support of an appeal from Custodia Bank. After a March decision in U.S. District Court for the District of Wyoming, Custodia appealed to the Tenth Circuit challenging the Federal Reserve from denying the bank access to a master account.

Background of case

Custodia applied for a master account in October 2020 and filed a lawsuit against the central bank in June 2022 over allegations that the Fed engaged in an “unlawful delay” in processing its application. The Fed rejected Custodia’s application in 2023, citing the bank’s connections to the crypto space in its decision. In March 2024, a judge supported the Fed’s decision, denying Custodia an opportunity to have its application reviewed.

“Unfortunately for Custodia, its application was caught in the current of federal regulators’ aggressive, coordinated efforts to ‘debank’ the digital asset industry,” said Verrilli in the July 3 filing.

Source: PACER

On behalf of the Blockchain Association, the former solicitor general cited January 2023 statements from the Federal Reserve, Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency claiming crypto was “highly likely to be inconsistent with safe and sound banking practices.” The Fed rejected Custodia’s application for a master account after the coordinated statement from the federal regulators. 

Verrilli added: 

“Through no fault of its own, Custodia became the focus of federal banking regulators’ campaign to isolate the digital asset industry from the greater national economy.”

Other interested parties have filed similar amicus briefs supporting Custodia’s appeal, 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. Paul Clement, another former U.S. Solicitor General, filed a brief for the Digital Chamber and Global Blockchain Business Council that claimed Custodia had fallen into “disfavor with federal regulators.”

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It’s unclear when the appellate court may decide on the Custodia request. It is also likely that the judges may consider a June 28 Supreme Court opinion overturning the Chevron doctrine in its decision. A majority of justices in the highest court overturned the precedent requiring courts to defer to federal agencies’ interpretation of the law, which could apply to the Federal Reserve’s decision on Custodia’s application for a master account.

On July 10, the U.S. House of Representatives will reconsider a resolution to overturn a Securities and Exchange Commission accounting rule that has prevented banks from handling crypto. Despite initially passing in both the House and Senate, President Joe Biden vetoed the legislation in May. The House can override the veto with a two-thirds majority vote.

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