Custodia Bank’s Fed membership application denied by Federal Reserve Board

The Federal Reserve Board has denied a Wyoming cryptocurrency bank’s application for Federal Reserve System membership, officers introduced Friday, dealing a setback to the crypto trade’s makes an attempt to construct acceptance in mainstream U.S. banking.

Many in crypto have been trying to Cheyenne-based Custodia Bank’s greater than 2-year-old application as a bellwether for crypto banking. Approval would have meant entry to Federal Reserve companies together with its digital funds system.

The rejection provides to doubts about crypto banking’s viability, notably in Wyoming, a state that has sought to turn out to be a hub of crypto banking, exchanges and mining.

Custodia’s enterprise mannequin and deal with crypto introduced “vital security and soundness dangers” for depositors, the Federal Reserve Board stated in a press release.

Federal Reserve Board officers throughout a Fed Listens occasion in Washington, D.C., on Friday, Sept. 23, 2022. (Al Drago/Bloomberg through Getty Images / Getty Images)

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“The board has beforehand made clear that such crypto actions are extremely more likely to be inconsistent with secure and sound banking practices,” it added.

The board additionally expressed doubt about Custodia’s capability to discourage cash laundering and terrorism financing by way of crypto.

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Custodia sued the Federal Reserve Board and Federal Reserve Bank of Kansas City in Wyoming federal court docket final yr, accusing them of taking an unreasonably very long time on its application. In a press release Friday, the corporate stated it was “stunned and upset” by the rejection and pledged to proceed to litigate the problem.

“Custodia provided a secure, federally regulated, solvent various to the reckless speculators and grifters of crypto that penetrated the U.S. banking system, with disastrous outcomes for some banks. Custodia actively sought federal regulation, going above and past all necessities that apply to conventional banks,” the assertion quoted CEO Caitlin Long as saying.

FILE PHOTO: Representations of cryptocurrencies are seen on this illustration, Aug. 10, 2022.  (REUTERS/Dado Ruvic/Illustration / Reuters Photos)

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Wyoming lately has handed many legal guidelines and rules pleasant to crypto and blockchain, the digital ledgers on which Bitcoin, Etherium and other cryptocurrencies run. One new legislation permits state-chartered crypto banks referred to as particular goal depository establishments.

Wyoming has chartered 4 such crypto banks referred to as SPDI’s, or “speedies,” together with Custodia. They have proven little public exercise whereas Custodia’s application was pending.