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NYDFS Chief Dismisses 'Choke Point 2.0' Theory of Signature’s Closure as 'Ludicrous'

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Signature Bank’s takeover last month was not a part of any “Operation Choke Point 2.0,” according to Adrienne Harris, superintendent of the New York Department of Financial Services (NYDFS), who called the idea “ludicrous.”

Speaking to the audience at blockchain analytics firm Chainalysis’ Links conference in New York on Wednesday, Harris said the decision by her office to step in and shut down Signature was totally unrelated to crypto.

“The idea that taking possession of Signature was about crypto, or that this is Choke Point 2.0 is really ludicrous,” Harris said. “I mean, I just have no other way to say it – what we saw was a new-fashioned bank run. When you have a high percentage of uninsured deposits, and you don’t have liquidity management protocols in place, you end up in a place where you cannot open on Monday in a safe and sound manner.”

Signature was shuttered on March 12, two days after the collapse of Silicon Valley Bank, and four days after Silvergate Bank announced it would close. All three banks were closely tied to the crypto industry. The closure of the banks, along with the Federal Reserve Board’s decision to reject crypto-friendly Custodia Bank’s membership application, has fueled theories that there is a coordinated effort among U.S. regulators to cut the crypto industry off from the banking system – popularly dubbed Operation Choke Point 2.0. That's a reference to an earlier effort by U.S. federal agencies to cut off legal but controversial businesses from banking services.

But Harris said Wednesday the idea that regulators are trying to de-bank crypto is “silly.”

“If you look at our rules, if you look at our guidance, they necessitate our virtual asset companies having a strong banking partnership with well-regulated banks,” Harris said. “So the idea that we don't want those banks to exist just doesn't make any logical sense.”

Harris added that her department’s rules – despite being considered onerous by some in the industry – have the benefit of providing a clear road map for crypto companies wishing to operate in New York.

“When you have rules on the books, when they are transparent, when it's in black and white, and everybody knows what they are, that is the best way,” Harris said. “And, frankly, it’s the fastest way to grow a robust and responsible ecosystem that can innovate, that can integrate with traditional financial services system, that can serve customers, and make our markets more efficient.”