The Federal Reserve Board has rejected Custodia Bank’s attempt to join the Federal Reserve System. According to the decision released Friday, the application submitted by the Digital Asset Bank is inconsistent with legal requirements.
The Federal Reserve said the business model proposed by Custodia Bank poses risks
Crypto bank Custodia has been denied admission to the Federal Reserve System; in an announcement dated January 27, the Federal Reserve explained that the application submitted by the company is “inconsistent with the required elements under law.”
The press release further detailed that Custodia is a special purpose depository institution without federal deposit insurance and desires to engage in “untested crypto activities,” including issuing crypto assets. In it, the Board asserted that.
The company’s novel business model and proposal to focus on crypto assets presented significant safety and soundness risks.
The Federal Reserve recalled that it had previously determined that “such crypto activities are likely to be inconsistent with safe and sound banking practices.” It also stated that the bank’s risk management framework, “including its ability to mitigate the risks of money laundering and terrorist financing,” was not sufficient to address related concerns.
“In light of these and other concerns, the company’s application as submitted was inconsistent with the factors the Board is required by law to evaluate,” the group concluded in a statement, adding that it would issue an order following a confidential information review.
Membership in the Federal Reserve System provided Custodia, a bank founded by the state of Wyoming, with certain benefits in terms of taxation and investments, for example.30} In a tweeted statementCEO Caitlin Long said the company was “surprised and disappointed” by the board’s move and asserted that.
Custodia provided a secure, federally regulated, and solvent alternative to the reckless speculators and crooks in crypto who have infiltrated the US banking system with dire consequences for some banks.
Long emphasized that Custodia aggressively sought federal regulation and “exceeds all requirements applicable to traditional banks.” He noted that the denial was consistent with the concerns the company had raised about the Fed’s response to its application, and vowed that the bank would continue to litigate the issue.
The executive was referring to a lawsuit filed by Custodia against the central banking system’s delayed ruling on its master account application. As the company noted on Twitter, the latter is still pending. The bank holds most of its reserves in the Fed’s master account, which allows for the settlement of transfers and payments between each other.
Also on Friday, the Federal Reserve issued a policy statement, according to which insured and uninsured banking institutions will be subject to restrictions on certain activities, including those related to crypto assets.
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