Many of you may remember my coverage of “Operation Chokepoint 2.0” in the spring of 2023. To recap, Biden’s financial regulators, namely the Fed, FDIC and OCC, began cracking down on banks dealing in the cryptocurrency space.
The first victim was the Silvergate Bank. Voluntary LiquidationThe standard reporting on Silvergate was that the bank lent to crypto depositors who were fickle: as interest rates rose, Silvergate suffered M2M losses on its bond portfolio and ultimately went bankrupt.
But that's not true: Silvergate weathered the storm, even as short sellers and lawmakers like Sen. Elizabeth Warren (D-Mass.) fomented bank runs based on rumors that Silvergate had criminal ties to FTX. The company has since exonerated itself from those allegations.
They are targeting your livelihood, making it impossible to conduct business as usual by making you unable to bank or charging high bank fees.
Silvergate suffered massive redemptions post-FTX but remained solvent and able to operate — but there was one problem: the Fed told the bank it needed to reduce its crypto exposure to only a nominal (“ancillary”) part of its business.
This is like telling Dunkin' Donuts that they can't sell donuts or coffee. Silvergate was a boutique crypto bank serving the crypto industry, so after the Fed issued this new informal guidance, the company went out of business and went into voluntary liquidation.
Bank assets are also harmful, and with the Silicon Valley Bank and Silvergate cases, cryptocurrency-related businesses do not have According to the OCC, the items being sold are SEN and Signetand cryptocurrency deposits at those banks.
I told that story two piece in Pirate Wire It was launched in 2023, and since then, “Operation Choke Point 2.0” has become a regular feature in discussions.
One thing I've been trying to emphasize is that Silvergate died of murder, not suicide. The key point is that the Fed told Silvergate after the withdrawals that they needed to cut their crypto deposits to 15% of their books and make the bank insolvent (which is patently unconstitutional, by the way).
Initial reports suggested this was the FDIC, but it was actually the San Francisco Fed that delivered this guidance. The effect was the same, crushing pro-crypto banks and preventing crypto-related companies from doing banking business.
So far, no evidence has emerged about the Silvergate scandal beyond background statements made by bank executives to journalists.
Most of my reporting on OCP 2.0 has been corroborated hundreds of times by those affected. And yet, the Silvergate issue remains a mystery as banks go into wind-down mode and settle with the SEC and others. (There's another story about the settlement, but that's for another day.)
So what's new now is that Elaine Hetrick, Silvergate's former chief administrative officer, has filed a declaration as part of Silvergate's Chapter 11 bankruptcy filing. For the first time, it completely confirms what I've been reporting.
It's all on record. Find it. here.
we have Never Silvergate executives could go on the record and tell the true story of what happened. At Signature, at least Barney Frank was willing to talk. But the litigation and bankruptcy proceedings have prevented Silvergate executives from doing so.
Hetrick's affidavit is interesting. She starts by talking about the infamous FRB/FDIC/OCC “Joint Statement” of January 2023, which was the first indication that something was wrong: “At the time of the initial Joint Statement, Silvergate Bank's remaining deposit base was highly concentrated in crypto-related depositors, as it had been for several years.”
Hetrick noted that Silvergate was able to weather the cash flow problems that came with rising interest rates and the shrinking of the cryptocurrency industry's balance sheets. The company remained solvent when the dust settled. “The crisis of confidence across the digital asset industry and similar issues faced by banks across the country led to 'bank runs.'”
As a result of its liquidity risk management and planning, Silvergate Bank was able to manage the bank run and pay all of its depositors as their funds were withdrawn. According to an article in the Federal Reserve Bank of St. Louis' Economic Profile detailing the speed and scale of the most severe bank runs in 1984, 2008, and 2023, Silvergate Bank was the only bank on the list of the most severe bank runs that did not fail, experience a forced sale or government takeover, or require government funding for stabilization.
This is the smoking gun: Silver Age was solvent and operational, but the Fed was telling its executives that they needed to wind down their cryptocurrency operations. Without them, they would have had to restructure the entire company. this The cause of the liquidation was “increasing supervisory pressure on Silvergate Bank and other banks focused on the cryptocurrency business, which has forced Silvergate Bank to either reshape its business model away from its cryptocurrency focus, sell itself as a going concern in the regulatory shadow, or begin to wind down its operations.[.]”
Hetrick also discussed Signature Bank's bankruptcy receivership, pointing out further evidence of a choke point (which I wrote about at the time) in the fact that the acquisition did not include any crypto-related banking operations. “The closure and sale of the failed Signature Bank speaks to the intense regulatory pressures facing banks in the digital asset industry at the time,” she noted.
“On March 20, 2023, the FDIC announced that Signature Bank was sold to Flagstar Bank, NA and that the sale did not include the transfer of cash depositors related to Signature Bank's digital asset banking operations.”
Hetrick took a very bleak stance, writing: “This public signal and sudden regulatory change makes it clear that, at least as of the first quarter of 2023, federal banking regulators will not tolerate banks with a high concentration of digital asset clients, ultimately preventing Silvergate Bank from continuing with its digital asset-focused business model.”
Biden's banking regulators would allow banks that serve certain customer groups to Legal In running the industry, they actively caused the collapse of certain banks, such as Silvergate Bank and Signature Bank. These banks disappeared by murder, not suicide. This remains a huge scandal and no one has been held accountable. Neither the media nor the public knows the truth. And the Biden Administration continues to deny its role in OCP 2.0, even though the evidence is abundantly clear.
Hetrick's testimony is very important because it proves, directly, officially, and under penalty of perjury, something we've known all along but no one has ever been willing to admit. The Biden Administration directly put Silvergate Bank out of business. The bank didn't destroy itself through mismanagement or failed trades. It was destroyed because the Federal Reserve Board determined that as a bank, it was not permitted to serve cryptocurrency customers. When the executives were liquidated, cryptocurrency-related businesses like SEN were not allowed to survive, but were thrown in the trash.
Incidentally, what the Biden administration is doing is clearly illegal. Cooper & Kirk, the law firm that filed suit over OCP 1.0 under the Obama administration, pointed out OCP 2.0 violates the Fifth Amendment.
Over a year later, I'm still incredibly angry about this because while the common view on Silvergate and Signature is “they just made stupid balance sheet mistakes,” the truth is, they were taken down by their own regulators. The vulnerability of crypto banks was exacerbated by people like Senator Warren publicly calling for bank runs and falsely claiming that these banks were criminally influenced by FTX. The Big LieBy the way, the fact that a sitting senator encouraged a bank run is complete insanity!
Regulators then saw the exodus from these banks as evidence that cryptocurrencies were too risky for banks to handle, and used it as an excuse to crack down, introducing new rules that made it impossible to become a crypto bank, and Dunkin' Donuts was banned from selling donuts.
This is a mind-boggling scandal that makes my blood boil, which is why it's so important that the truth comes out and why testimonies like Elaine's are so important.
If the Biden Administration allows itself to pretend that the government did nothing wrong and that these banks just happened to self-destruct, regulators will do it again. As I write this, they are actively stifling the crypto industry through the dispossession of banking. If you are an entrepreneur or have any connection to crypto, you should be outraged by this too. They are after your livelihood and making it impossible for you to operate normally by making banking inaccessible/expensive.
I feel very vindicated, and my original report since published in 2023 is 100% accurate (though it does get some minor details wrong, like it's the Fed that imposes the 15% cap, not the FDIC).
But I'm not satisfied. I'm angry that people are talking about OCP 2.0 and no one really understands what a terrible scandal it was. The government destroyed some banks because they didn't like that they were serving a perfectly legitimate industry. Here's the plain truth. It's 10 times worse than people think.
This article was originally published as a thread posted on X. It has been lightly edited for clarity.
