Custodia Financial CEO Critiques US Government’s Inaction on Crypto Debanking During Trump Administration

Custodia Financial institution CEO Caitlin Lengthy has expressed her discontent with the U.S. government’s inaction regarding crypto debanking since former President Donald Trump resumed office.

During her remarks at ETHDenver on Feb. 28, Lengthy noted that despite the perception of a policy shift, federal banking agencies have not overturned any anti-crypto regulations.

“It’s still considered unsafe and unsound for a bank to engage with a digital asset, even in a minimal amount,” Lengthy stated, underscoring that no regulatory updates have been made concerning crypto banking.

She remains optimistic that changes will eventually take place but pointed out that Trump has yet to propose any reforms.

Call for Leadership Change at the FDIC

Lengthy emphasized the need for a new chair at the Federal Deposit Insurance Corporation (FDIC), arguing that under former chairman Martin Gruenberg, the FDIC had resisted technological advancements for over 15 years.

Gruenberg was succeeded by Acting Chair Travis Hill on Jan. 20, but Lengthy suggested that more profound structural changes are necessary.

Gruenberg had been accused of playing a significant role in ‘Operation Chokepoint 2.0′, an alleged federal initiative aimed at restricting banking services to crypto firms.

While banking regulators remain rigid, Lengthy acknowledged the SEC’s recent change in approach towards the crypto sector.

The SEC’s establishment of a Crypto Task Force, led by Commissioner Hester Peirce just one day after Trump’s inauguration, indicated a new perspective on digital assets.

Additionally, the SEC rescinded the contentious Staff Accounting Bulletin 121 (SAB 121), which previously mandated that financial institutions classify crypto holdings as liabilities—an accounting rule that faced significant criticism within the industry.

Lengthy also called on lawmakers to enact long-awaited stablecoin regulations while ensuring enhanced consumer protections.

She pointed out that many U.S. banks maintain only 8 cents in cash for every $1 of demand deposits, rendering them vulnerable to bank runs.

“In the crypto industry, we’ve learned that business model doesn’t work,” she stated, referencing the downfall of Silvergate Bank.

To safeguard consumers, Lengthy stressed that stablecoin issuers should be mandated to hold cash reserves backing their liabilities, ensuring the sector’s long-term stability.

A Changing Regulatory Environment

It’s important to note that the political shift has already made an impact.

Throughout February, the U.S. Securities and Exchange Commission (SEC) initiated several enforcement actions against crypto companies, indicating a change in regulatory tone.

As reported, cryptocurrency enforcement in the United States may relax under the forthcoming administration of Republican President-elect Donald Trump, with regulatory priorities expected to shift.

Speaking at a legal conference in New York, current and former senior government attorneys suggested that while financial fraud cases will still be pursued, the Justice Department’s focus will likely shift towards immigration enforcement, a key campaign promise of Trump.

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