Does becoming a federal bank protect crypto from Washington-or give Washington more control?

Silvergate's former chief executive, Alan Lane, says the crypto-focused bank survived withdrawals of roughly 70% of its demand deposits before political pressure drove it to choose liquidation.

His account raises a question for the crypto companies obtaining federal bank charters: how much protection does becoming a bank actually provide?

In his Sept. 8 account, Lane blamed the former President Joe Biden administration for making continued operations untenable.

More than three years after the bank announced its voluntary wind-down, crypto companies are obtaining federal trust-bank charters that put their custody businesses directly under the Office of the Comptroller of the Currency.

Federal trust charters give companies an established legal framework for custody, the business of safeguarding customer assets. They also create a direct supervisory relationship with Washington and can leave firms dependent on other banks for cash.

Lane says Silvergate remained “solvent and liquid” after the late-2022 withdrawals and could have continued serving customers. He attributes the decision to announce liquidation on March 8, 2023, to political and regulatory pressure.

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